- 23 -
To show an underpayment for purposes of the fraud penalty,
respondent must show by clear and convincing evidence that
petitioner had an underpayment of tax for each year in issue.
Once respondent shows that a taxpayer had unreported income,
respondent generally does not have the burden of proving that the
taxpayer does not have any unclaimed costs of goods sold or
deductions that would offset the unreported income. United
States v. Bender, 218 F.2d 869, 871-872 (7th Cir. 1955); United
States v. Stayback, 212 F.2d 313, 317 (3d Cir. 1954); Clark v.
United States, 211 F.2d 100, 103-104 (8th Cir. 1954); Franklin v.
Commissioner, T.C. Memo. 1993-184; Perez v. Commissioner, T.C.
Memo. 1974-211.
In contrast, to show an underpayment in a case in which
there appears to be a genuine basis for believing the taxpayer’s
claim that costs of goods sold and expenses were substantial, the
Commissioner must prove that the taxpayer had at least some
unreported net income; i.e., that the taxpayer’s gross receipts
exceeded the taxpayer’s costs of goods sold and deductions. AJF
Transp. Consultants, Inc. v. Commissioner, T.C. Memo. 1999-16,
affd. without published opinion 213 F.3d 625 (2d Cir. 2000); Cox
v. Commissioner, T.C. Memo. 1993-559; CHEM, Inc. v. Commissioner,
T.C. Memo. 1993-520; Van Vorst v. Commissioner, T.C. Memo. 1993-
353; McNichols v. Commissioner, T.C. Memo. 1993-61, affd. 23 F.3d
932 (1st Cir. 1993); Zack v. Commissioner, T.C. Memo. 1981-700,
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011