-7-
shifts the burden of proof to the Commissioner provided the
taxpayer complies with substantiation requirements, maintains all
required records, and cooperates with the Commissioner’s
reasonable requests. Id.4
We decline to shift the burden of proof to respondent.
Petitioner has not substantiated the bad debt deduction nor
maintained the required records.5 Sec. 7491(a)(2)(A) and (B).
The burden of proof, therefore, remains with petitioner.
4Sec. 7491 is effective with respect to court proceedings
arising in connection with examinations by the Commissioner
commencing after July 22, 1998, the date of enactment of the
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, sec. 3001(a), 112 Stat. 726.
5Petitioner relies on the footnote to the Senate report on
sec. 7491 to argue that he should still be entitled to shift the
burden of proof because his records were lost through no fault of
his own. See S. Rept. 105-174 at 46 n.27 (1998), 1998-3 C.B.
537, 582. Petitioner’s reliance is misplaced. First, petitioner
misinterprets the meaning of the footnote. The Senate was
describing the rule that permits reconstruction of records in a
situation where records are destroyed by no fault of the taxpayer
and stated that these existing rules would continue to apply.
See id.; see, e.g., sec. 1.274-5T(c)(5), Temporary Income Tax
Regs., 50 Fed. Reg. 46022 (Nov. 6, 1985). The footnote does not
suggest that a taxpayer who failed to maintain any records may
still shift the burden of proof to the Commissioner. Second,
petitioner has not introduced evidence that he maintained the
requisite records. If the records generated by his periodic
reporting system for each gallon of gas sold were indeed damaged,
petitioner presumably kept ledgers or journal entries showing
accounts receivable and the outstanding balance. No evidence of
this type was introduced, however. Further, petitioner
introduced no evidence of the damage other than a vague allusion
in Mr. Rabinowitz’s testimony that the backup records “got wet or
something, moldy” and were therefore discarded. The paucity of
the records introduced leaves us unable to assess whether it was
appropriate to discard the backup records.
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