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As a general rule, the taxpayer bears the burden of proving
the Commissioner’s determinations to be in error. Rule 142(a).3
Certain 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 (9th Cir. 1979), revg.
67 T.C. 672 (1977). In such circumstances, the Commissioner must
come forward with evidence establishing a minimal foundation,
which may consist of evidence linking the taxpayer with an
income-producing activity. Petzoldt v. Commissioner, supra at
689.
Because respondent has shown that petitioner was convicted
of the illegal distribution of cocaine, and that petitioner
received and spent proceeds from the sale thereof, respondent has
linked petitioner to the relevant income-producing activity.
Respondent provided this Court with summary documents evidencing
the various cash deposits and expenditures underlying his
determination of the amounts of unreported income. These
summaries generally were produced by respondent during the
criminal investigation and prosecution of petitioner. Although
3 Sec. 7491, which shifts the burden of production and/or
proof under certain circumstances, does not apply in the present
case because the underlying examination commenced prior to July
22, 1998. Internal Revenue Service Restructuring & Reform Act of
1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727.
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Last modified: May 25, 2011