Ray W. and Marilyn S. Sowards - Page 13

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               Section 7491(a)(1) applies in court proceedings arising only           
          in connection with examinations commencing after July 22, 1998.16           
          See RRA 1998 sec. 3001(c), 112 Stat. 727.  Agent Daleiden’s first           
          contact letter regarding 1995 was mailed to petitioners in April            
          1998.   Accordingly, respondent’s examination of petitioners’               
          1995 return commenced prior to the effective date of section                
          7491.  Seawright v. Commissioner, 117 T.C. 294 (2001).  Thus, we            
          find section 7491 inapplicable to petitioners’ 1995 return.                 
               Since the examination of petitioners’ 1996 and 1997 returns            
          commenced after the effective date of section 7491, we must                 
          consider the provisions of that section.  The burden of proof               
          will shift to the Commissioner only after the taxpayer introduces           
          “credible evidence” with respect to a factual issue relevant to             
          ascertaining the taxpayer’s income tax liability.  See sec.                 
          7491(a).  The statute fails to define what constitutes “credible            
          evidence”.  The conference committee report assists in                      
          determining its intended meaning:                                           



               16The House conference report states:                                  
               An audit is not the only event that would be considered                
               an examination for purposes of this provision.  For                    
               example, the matching of an information return against                 
               amounts reported on a tax return is intended to be an                  
               examination for purposes of this provision.  Similarly,                
               the review of a claim for refund prior to issuing that                 
               refund is also intended to be an examination for                       
               purposes of this provision. [H. Conf. Rept. 105-599, at                
               242 (1998), 1998-3 C.B. 747, 996.]                                     




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