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section 7491(a)(1), however, the burden of proof shifts to the
Commissioner if, inter alia, the taxpayer first introduces
credible evidence with respect to any factual issue relevant to
ascertaining the taxpayer’s liability for income tax.12 Higbee
v. Commissioner, 116 T.C. 438, 442 (2001). With respect to a
taxpayer’s liability for any penalty, however, section 7491(c)
places on the Commissioner the burden of production.
A. The IRA Distribution13
Generally, any amount paid or distributed out of an IRA is
includable in the recipient’s gross income as provided in section
72. Sec. 408(d)(1); sec. 1.408-4(a), Income Tax Regs. This rule
does not apply, however, to any amount distributed from an IRA to
the individual for whose benefit the account is maintained if the
entire amount is paid into an IRA for the benefit of such
individual not later than 60 days after the distribution. Sec.
408(d)(3); Schoof v. Commissioner, 110 T.C. 1, 7 (1998); sec.
1.408-4(b)(1), Income Tax Regs.
Moreover, Rev. Rul. 78-406, 1978-2 C.B. 157, provides that a
transfer of a participant’s IRA funds directly from one trustee
12 Sec. 7491(a)(1) is applicable to court proceedings
arising in connection with examinations commencing after July 22,
1998. See Internal Revenue Service Restructuring and Reform Act
of 1998, Pub. L. 105-206, sec. 3001(a), (c)(1), 112 Stat. 685,
726, 727.
13 We assume, arguendo, that the Veazie property-IRA
arrangement is not a prohibited transaction under sec. 4975(c)
despite its specious characteristics. See sec. 408(e).
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