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arise in connection with examinations commencing after July 22,
1998, however, may operate in specified circumstances to place
the burden on the Commissioner. Internal Revenue Restructuring
and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat.
727. With respect to factual issues and subject to enumerated
limitations, section 7491(a) may shift the burden of proof to the
Commissioner in instances where the taxpayer has introduced
credible evidence. Section 7491(c) places the burden of
production on the Commissioner with respect to penalties and
additions to tax.
Although the above effective date renders section 7491
applicable to the instant case, the Court finds it unnecessary to
decide whether the burden should be shifted under section
7491(a). Given that the agreement pursuant to which the payment
at issue was made has been stipulated by the parties, the factual
circumstances underlying the transaction are undisputed. The
record in this case therefore enables us to reach a decision on
the merits, based upon a preponderance of the evidence, without
regard to burden of proof.
II. Income Characterization
A. General Rules
As a general rule, the Internal Revenue Code imposes a
Federal tax on the taxable income of every individual. Sec. 1.
Section 61(a) specifies that “Except as otherwise provided”,
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