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petitioners had sufficient notice to reasonably contest the
documents, and, thus, the Court admitted the documents into
evidence.
III. Petitioners’ Income Tax Liability
A. Burden of Proof
In general, the Commissioner’s determination of a taxpayer’s
tax liability is presumed correct, and the taxpayer bears the
burden of proving that respondent’s determination is improper.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). The
“presumption of correctness” is appropriate where respondent has
furnished evidence linking the taxpayer to the “tax generating
activity”. Gold Emporium, Inc. v. Commissioner, 910 F.2d 1374,
1378 (7th Cir. 1990), affg. Malicki v. Commissioner, T.C. Memo.
1988-559. If respondent introduces evidence that the taxpayer
received unreported income, then the burden shifts to the
taxpayer to show by a preponderance of the evidence that the
deficiency was arbitrary and erroneous. Hardy v. Commissioner,
181 F.3d 1002, 1004 (9th Cir. 1999), affg. T.C. Memo. 1997-97;
see also Edwards v. Commissioner, 680 F.2d 1268, 1270 (9th Cir.
1982) (“[T]he Commissioner’s assertion of deficiencies are
presumptively correct once some substantive evidence is
introduced demonstrating that the taxpayer received unreported
income.”). In this case, respondent need only present some
substantive evidence that petitioners received income in 2001 to
shift the burden to petitioners. Hardy v. Commissioner, supra at
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