- 7 - We also note that section 7491(a) is inapplicable here in that we do not find that petitioners maintained adequate records or satisfied applicable substantiation requirements. See Prince v. Commissioner, supra. We hold that the burden of proof remains with petitioners. II. Understatement of Income The deficiency determination made by respondent enjoys the presumption of correctness, and the burden of proving otherwise rests with petitioners. Rule 142(a); Rapp v. Commissioner, 774 F.2d 932, 935 (9th Cir. 1985). However, in the case of underreported income, the usual presumption in favor of respondent arises only if respondent’s allegations are supported by a minimal factual foundation linking the taxpayer with an income-producing activity. Palmer v. United States, 116 F.3d 1309, 1313 (9th Cir. 1997). Here, respondent has established that petitioners, in 1998, (1) had been engaged in an income-producing activity, to wit, their ownership and operation of the billiard hall and (2) had accumulated net deposits in the amount of $266,186, which is greater than the amount reported by them as taxable income by $137,221. Petitioners do not contest either the fact that they had owned and operated Playa Azul, or the fact that their bank deposits are in excess of their taxable income by the amount claimed by respondent.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
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