Dennis J. and Carol R. Kraus - Page 6

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          A.  Section 7491--Burden of Proof                                           
               We first consider the questions raised concerning the burden           
          of proof under section 7491.4  Petitioners contend that the                 
          burden of proof should be placed on respondent under section                
          7491.  Section 7491(a) generally provides that the burden of                
          proof shall be on the Commissioner with respect to any factual              
          issue relevant to the taxpayer’s liability for tax where the                
          taxpayer introduces credible evidence with respect to any such              
          issue.  The burden is not placed on the Commissioner unless a               
          taxpayer has complied with requirements to substantiate the item            
          in issue and has maintained required records and cooperated with            
          reasonable requests by the Commissioner for documents or                    
          information.  Sec. 7491(a)(2)(A) and (B)                                    
               Respondent contends that petitioners have not complied with            
          the substantiation requirements.  Petitioners contend that their            
          maintenance of computer or machine sensible records was                     
          sufficient to meet the section 7491 record requirement.                     
               We find it unnecessary to decide whether the burden of proof           
          is on respondent because we have decided these issues on a                  
          preponderance of the evidence.                                              

               4 Sec. 7491 is effective for 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), 112 Stat. 726.                               

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