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Analysis
Generally, the burden of proof is on the taxpayer. Rule
142(a)(1). The burden of proof may shift to the Commissioner
under section 7491 if the taxpayer establishes compliance with
the requirements of section 7491(a)(2)(A) and (B) by
substantiating items, maintaining required records, and fully
cooperating with the Secretary’s reasonable requests. Section
7491 is effective with respect to Court proceedings arising in
connection with examinations by the Commissioner commencing after
July 22, 1998, the date of its enactment by section 3001(a) of
the Internal Revenue Service Restructuring and Reform Act of
1998, Pub. L. 105-206, 112 Stat. 685, 726. The burden of
production remains with the Commissioner with respect to the
taxpayer’s liability for any penalty or addition to tax. Sec.
7491(c); Higbee v. Commissioner, 116 T.C. 438 (2001).
It is not clear from the record when respondent commenced
the examination of petitioners’ return; therefore, we are
uncertain whether section 7491 is applicable. Nevertheless,
petitioners have not established that they complied with its
requirements. Accordingly, even if section 7491 were applicable,
we conclude that the burden of proof remains upon petitioners.
1. Unreported Income
Gross income means all income from whatever source derived.
Sec. 61. When a taxpayer fails to provide adequate records
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Last modified: May 25, 2011