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notice of deficiency loses its presumption of correctness when it
is arbitrary and excessive, e.g., Estate of Mitchell v.
Commissioner, 250 F.3d 696, 701-702 (9th Cir. 2001), affg. in
part, revg. in part, and remanding T.C. Memo. 1997-461; Morrissey
v. Commissioner, 243 F.3d 1145, 1148-1149 (9th Cir. 2001), revg.
Estate of Kaufman v. Commissioner, T.C. Memo. 1999-119; Cohen v.
Commissioner, 266 F.2d 5, 11-12 (9th Cir. 1959), remanding T.C.
Memo. 1957-172, that a notice of deficiency may be arbitrary and
excessive when it contains a valuation that respondent abandons,
e.g., Morrissey v. Commissioner, supra at 1148-1149, and that,
here, respondent at trial conceded in full his sole determination
in the notice of deficiency that each day’s deposits totaling
$10,000 or more constituted unreported gross receipts of KC.
As to the primary argument, the evidentiary record before us
is scant. The parties stipulated minimal facts and exhibits, and
petitioners at trial called the only two witnesses, Baek and Yoo,
whose testimony was brief on direct examination and even briefer
on cross-examination. We find, however, that Yoo did not pay the
$126,646.80 to Baek as compensation received in the operation of
KC’s export business. That business was not even in operation
during 1999. We also find that Baek received the $126,646.80
from nontaxable sources. In addition to the $771,640 that was
paid to Baek by Yoo in repayment of the checks written to Yoo or
to Yoo’s businesses, the $898,286.80 of deposits into the KC
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