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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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