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Welch v. Helvering, 290 U.S. 111 (1933).7 However, the
presumption of correctness does not apply when the Government’s
determination is a “‘naked’ assessment without any foundation
whatsoever”. United States v. Janis, 428 U.S. 433, 441 (1976).
An appeal of the cases at hand would lie to the Court of
Appeals for the Ninth Circuit, which has held in unreported
income cases that the presumption of correctness applies only if
the Commissioner’s determination is supported by some substantive
evidence that the taxpayer received the unreported income. Rapp
v. Commissioner, 774 F.2d 932, 935 (9th Cir. 1985); Weimerskirch
v. Commissioner, 596 F.2d 358, 360-361 (9th Cir. 1979), revg. 67
T.C. 672 (1977); Petzoldt v. Commissioner, 92 T.C. 661, 687-690
(1989) (discussing Court of Appeals for the Ninth Circuit
authorities). However, once the Commissioner has introduced the
necessary “predicate evidence” concerning the unreported income,
the taxpayer has the usual burden of establishing, by a
preponderance of the evidence, that the Commissioner’s
determination is arbitrary or erroneous. Rapp v. Commissioner,
supra at 935; Petzoldt v. Commissioner, supra at 689. The Court
7 The provision of sec. 7491(a) for shifting the burden of
proof to the Commissioner applies only to Court proceedings
arising in connection with examinations commenced after July 22,
1998, Internal Revenue Service Restructuring and Reform Act of
1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726. In the cases at
hand, the notices of deficiency were issued on Oct. 7, 1996, and
Nov. 19, 1997. We find that the examinations were commenced
before July 23, 1998. Therefore, sec. 7491(a) does not apply to
the cases at hand.
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