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for capital gain treatment. The notice indicated that the payers
had reported the $50,512 to the Internal Revenue Service as
nonemployee compensation and that the amount constituted ordinary
income.
Petitioners filed their petition challenging this notice of
deficiency on February 21, 2003. The petition included the
following statement of petitioners’ disagreement with the
adjustments:
Two letters have been sent to the IRS with regard to
this assessment. The first letter clearly indicated
that the income in question was the result of the sales
[sic] of a business in which we had a small equity. We
had properly claimed this income as zero-based capital
gain. We were told that this income did not qualify as
capital gain because the payer had reported this as
non-employee income. They never considered the fact
the [sic] the payer might have filed incorrectly. In
at least one other instance like ours the IRS reversed
their position and agreed that the income was indeed a
capital gain and withdrew their claim. Why should I be
treated differently?”
A trial was subsequently held in this case, and Mr. Lowe
testified in support of petitioners’ position. At the close of
the trial, the parties were invited to file posttrial briefs.
Respondent filed such a brief, but petitioners did not.
Discussion
I. Burden of Proof
In general, the Commissioner’s determinations are presumed
correct, and the taxpayer bears the burden of proving otherwise.
Rule 142(a). Section 7491, effective for court proceedings that
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