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II. Burden of Proof
In general, the Commissioner’s determination of a taxpayer’s
tax liability is presumed correct, and the taxpayer bears the
burden of proving that the Commissioner’s determination is
improper. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933). The “presumption of correctness” is appropriate where
the Commissioner has furnished evidence linking the taxpayer to
the “tax generating activity”. Gold Emporium, Inc. v.
Commissioner, 910 F.2d 1374, 1378 (7th Cir. 1990), affg. Malicki
v. Commissioner, T.C. Memo. 1988-559.
Where the Commissioner introduces evidence that the taxpayer
received unreported income, as respondent did here, the burden
generally is on the taxpayer to show by a preponderance of the
evidence that the deficiency was arbitrary and erroneous. Hardy
v. Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999), affg. T.C.
Memo. 1997-97; see also Palmer v. IRS, 116 F.3d. 1309, 1312 (9th
Cir. 1997) (“The Commissioner’s deficiency determinations and
assessments for unpaid taxes are normally entitled to a
presumption of correctness so long as they are supported by a
minimal factual foundation.”)(emphasis added)); Edwards v.
Commissioner, 680 F.2d 1268, 1270 (9th Cir. 1982).
However, section 7491 may shift the burden to the
Commissioner in specified circumstances, for example, where the
taxpayer produces “credible evidence” and meets other
requirements. Sec. 7491(a)(1); see also H. Conf. Rept. 105-599,
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