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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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