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issues that affect the taxpayer’s tax liability may be shifted to
the Commissioner where the “taxpayer introduces credible evidence
with respect to any factual issue”. The burden will shift only
if the taxpayer has, inter alia, complied with substantiation
requirements pursuant to the Internal Revenue Code, and
“cooperated with reasonable requests by the Secretary for
witnesses, information, documents, meetings, and interviews”.
Sec. 7491(a)(2). Section 7491(a) does not apply in this case
because petitioner did not produce any credible evidence.
In unreported income cases, the Commissioner must come
forward with evidence establishing a minimal foundation, which
may consist of evidence linking the taxpayer to an income-
producing activity. Weimerskirch v. Commissioner, 596 F.2d 358,
360-361 (9th Cir. 1979), revg. 67 T.C. 672 (1977); Petzoldt v.
Commissioner, 92 T.C. 661, 689 (1989). If the Commissioner
introduces some evidence that the taxpayer received unreported
income, then the burden shifts to the taxpayer to show by a
preponderance of the evidence that the deficiency was arbitrary
or erroneous. Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th
Cir. 1999), affg. T.C. Memo. 1997-97. The Court concludes, based
on the stipulated facts, that respondent has established a
minimal foundation. Accordingly, the burden shifts to
petitioner.
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Last modified: May 25, 2011