Ramiro and Maria Martinez - Page 6

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          E.   The Present Litigation                                                 
               On March 22, 2004, petitioners timely filed a petition with            
          this Court seeking review of the notice of deficiency and                   
          alleging that they had expense documentation that would reduce              
          the amount of the deficiency.  On April 27, 2004, respondent’s              
          answer was filed.  The trial in this case was set for the Court’s           
          January 24, 2005, Los Angeles, California, trial session, and               
          both parties appeared and were heard.                                       
               Section 61(a) defines gross income for purposes of                     
          calculating taxable income as “all income from whatever source              
          derived”.  Respondent has determined that petitioners received              
          unreported income from Life Bank, Alpa, Geylikman, Svetella, and            
          the Los Angeles County Auditor Controller.                                  
               The Commissioner’s deficiency determination is normally                
          entitled to a presumption of correctness, Rapp v. Commissioner,             
          774 F.2d 932, 935 (9th Cir. 1985), and the burden of proving the            
          determination incorrect generally rests with the taxpayer, Rule             
          142(a).  However, when a case involves unreported income and that           
          case is appealable to the Court of Appeals for the Ninth Circuit,           
          barring a stipulation to the contrary, the Commissioner’s                   
          determination of unreported income is entitled to the presumption           
          of correctness only if the determination is supported by some               
          evidence linking the taxpayer to an income-producing activity.              

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