Sam Kong Fashions, Inc. - Page 13

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          of a corporation, partnership, or trust, satisfy the net worth              
          requirement of 28 U.S.C. sec. 2412(d)(2)(B).  Sec. 7491(a)(2).              
               Petitioners argue that section 7491 shifts the burden of               
          proof to respondent with respect to the underpayment of tax.                
          Respondent argues that section 7491 does not apply because                  
          petitioners have not shown that they maintained proper records or           
          that they cooperated with respondent during the examinations.               
               We find that petitioners have failed to satisfy the                    
          requirements of section 7491; therefore, the burden of proof does           
          not shift to respondent with respect to the underpayment of tax.            
          Petitioners failed to provide adequate records and to                       
          substantiate all the unreported expenses that they now claim.12             
          While petitioners have the burden of proving that respondent’s              
          deficiency determinations are erroneous, respondent bears the               
          burden of proving, by clear and convincing evidence, that                   
          petitioners are liable for the fraud penalties.  If respondent              
          establishes that the returns in question were fraudulent with the           
          intent to evade tax, the tax may be assessed at any time.  See              
          6501(c)(1).                                                                 




               12 As noted infra pp. 19-20, we have allowed some deductions           
          in addition to those claimed by Sam Kong Fashions on its returns.           
          These additional corporate deductions also decrease the                     
          constructive dividends that respondent determined were received             
          by Mr. Kong.                                                                





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Last modified: May 25, 2011