William E. and Karen L. Kivett - Page 3

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          The decision to be entered is not reviewable by any other court,            
          and this opinion should not be cited as authority.                          
               Respondent determined against petitioners a deficiency of              
          $16,010 in Federal income tax and the accuracy-related penalty              
          under section 6662(a) for their 2000 tax year.                              
               The issues for decision are:  (1) Whether respondent                   
          properly determined gross income under the bank deposits method             
          with respect to an activity conducted by Karen L. Kivett                    
          (petitioner), and (2) whether petitioners are liable for the                
          accuracy-related penalty under section 6662(a) for negligence               
          and/or substantial understatement of tax.                                   
               Some of the facts were stipulated.  Those facts, with the              
          exhibits annexed thereto, are so found and are made part hereof.            
          Petitioners’ legal residence at the time the petition was filed             
          was Yakima, Washington.                                                     
               Respondent’s determination arises solely from an activity              
          conducted by petitioner.  There is no issue with regard to the              
          income or expenses of petitioner’s spouse, who was a Federal                
               The activity in question was referred to and described as a            
          “gifting club” operated by petitioner.  This club was                       

          burden of proof to respondent.  Under sec. 7491(c), as to                   
          penalties, the burden of production is on respondent.  The facts            
          of this case, as recited, show that respondent has met that                 

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