Meri R. and William R. Kaufman - Page 7

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          defines gross income for purposes of calculating taxable income             
          as “all income from whatever source derived”.  This broad                   
          definition includes income obtained from illegal sources.  James            
          v. United States, 366 U.S. 213, 218 (1961); sec. 1.61-14(a),                
          Income Tax Regs.  Respondent has determined that Ms. Kaufman                
          received unreported income through embezzlement of funds from her           
               As a general rule, the taxpayer bears the burden of proving            
          error in the Commissioner’s determinations.  Rule 142(a).                   
          Although section 7491 may shift the burden to the Commissioner in           
          certain circumstances, the section is applicable only to court              
          proceedings that arise in connection with examinations commencing           
          after July 22, 1998.  Internal Revenue Service Restructuring &              
          Reform Act of 1998, Pub. L. 105-206, sec. 3001(c)(2), 112 Stat.             
          727.  It is apparent from the record in this case that the                  
          examination commenced prior to July 22, 1998, and, therefore,               
          section 7491 has no application.                                            
               Courts have recognized a limited exception to the general              
          rule where the notice of deficiency determines that the taxpayer            
          failed to report income, particularly income derived from illegal           
          activities.  Llorente v. Commissioner, 649 F.2d 152, 156 (2d Cir.           
          1981), affg. in part and revg. in part 74 T.C. 260 (1980);                  
          Weimerskirch v. Commissioner, 596 F.2d 358, 360-362 (9th Cir.               
          1979), revg. 67 T.C. 672 (1977); Petzoldt v. Commissioner, 92               

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