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1991), affg. 94 T.C. 96 (1990); Drum v. Commissioner, T.C. Memo.
1994-433, affd. 61 F.3d 910 (9th Cir. 1995).
The Commissioner has the burden of producing sufficient
evidence indicating it is appropriate to impose the section
6662(a) penalty or addition to tax. Sec. 7491(c);15 Higbee v.
Commissioner, 116 T.C. 438, 446 (2001). Once the Commissioner
meets his burden of production, the taxpayer must come forward
with evidence sufficient to persuade a court that the
Commissioner’s determination is incorrect. Higbee v.
Commissioner, supra at 447. The taxpayer also bears the burden
of proof with regard to issues of reasonable cause. Id. at 446.
Respondent satisfied his burden of production by introducing
petitioners’ 1997 returns and ATV’s ledger showing that neither
petitioner reported income or deductions under section 7872 as a
result of the debts even though petitioners concede section 7872
applies to the net amount of the debts.
Petitioners did not explain or justify why they did not net
the debts and report income under section 7872 for the 1997 tax
15Sec. 7491 is effective for court proceedings arising in
connection with examinations commencing after July 22, 1998. See
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, sec. 3001, 112 Stat. 726. The notices are dated
May 22, 2001. The parties have not informed us whether the
examination commenced on or before July 22, 1998, and neither
party addressed this issue. Because Mr. Cutts’s 1997 return was
filed on Oct. 19, 1998, and ATV’s 1997 return was filed on June
19, 1998, it is obvious that the examinations of petitioners’
returns commenced after July 22, 1998.
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