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2. Determination in Unreported Income Cases
The Court of Appeals for the Ninth Circuit has determined
that in order for the presumption of correctness to attach to a
deficiency determination in unreported income cases, the
Commissioner must establish “some evidentiary foundation”
connecting the taxpayer to the income-producing activity,
Weimerskirch v. Commissioner, 596 F.2d 358, 361-362 (9th Cir.
1979), revg. 67 T.C. 672 (1977), or demonstrate the taxpayer
received unreported income, Edwards v. Commissioner, 680 F.2d
1268, 1270 (9th Cir. 1982). Once there is evidence of actual
receipt of income by the taxpayer, the taxpayer has the burden of
proving that all or part of the income is not taxable. Tokarski
v. Commissioner, 87 T.C. 74, 76-77 (1986).
A deficiency determination which is not supported by some
evidentiary foundation is arbitrary and erroneous. Weimerskirch
v. Commissioner, supra at 362. In these circumstances, the
Commissioner has the burden of coming forward with evidence
establishing the existence and amount of a deficiency. Jackson
v. Commissioner, 73 T.C. 394, 401 (1979).
In this case, there is sufficient evidence linking
petitioner to all the 1997 income-producing activities except the
amounts reported by NPC. With respect to the Administrative
Record, petitioner testified: (1) He was employed by Auspex
Systems, Inc., and Microcadam, Inc, in 1997; (2) he had a
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