Menard, Inc. - Page 31

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          shift to respondent under section 7491.  We disagree.                       
          Petitioners have not shown that they satisfied the section                  
          7491(a)(2)(A) and (B) requirements to substantiate any item,                
          maintain all required records, and cooperate with respondent’s              
          reasonable requests.  Moreover, petitioner’s untimely assertion             
          in their reply brief has prejudiced respondent’s ability to                 
          present evidence regarding whether petitioners satisfied the                
          requirements of section 7491(a)(2).  See Estate of Aronson v.               
          Commissioner, T.C. Memo. 2003-189.                                          
               For the foregoing reasons, we conclude that section 7491(a)            
          does not shift the burden of proof to respondent on the issue of            
          the reasonableness of the TMI expenses.29  Moreover, we note that           
          we base our findings of fact on the preponderance of the evidence           
          in the record and not upon any allocation of the burden of proof.           
          Respondent concedes having the burden of production, pursuant to            
          section 7491(c) with respect to Mr. Menard’s liability for the              
          section 6662(a) accuracy-related penalty.30                                 
          II.  Deductibility of Compensation Paid to Mr. Menard                       
               Section 162(a)(1) provides that a taxpayer may deduct as an            
          ordinary and necessary business expense “a reasonable allowance             


               29Even if sec. 7491(a) operated to shift the burden of proof           
          to respondent in this case, the record establishes facts                    
          sufficient to support our conclusions regarding the TMI issue               
          accordingly.                                                                
               30Sec. 7491(c) does not place the burden of production on              
          the Commissioner when the taxpayer is a corporation.                        




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