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expense; and (3) whether Murphy is liable for an accuracy-related
penalty due to negligence or a substantial understatement.
1. Burden of Proof
A taxpayer usually bears the burden of proof on each
contested issue of fact. Rule 142(a); Alt v. Commissioner, 119
T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004).
But section 7491(a) lets him shift that burden to the
Commissioner if he shows that he kept all the records required by
the Code and cooperated with the IRS, and if he introduces
credible evidence about the particular issue on which he is
trying to shift the burden. Cipriano v. Commissioner, T.C. Memo.
2001-157, affd. 55 Fed. Appx. 104 (3d Cir. 2003).
In this case, we find that the Commissioner bears the burden
of proof on the central issue of the interest deduction. Murphy
was able to provide copies of the essential documents, and
credibly testified that his C.P.A. kept extensive records
regarding his business dealings. The Commissioner did not refute
this claim. Murphy was also able to substantiate the interest
transaction through canceled checks and payment agreements. And
we believed his testimony that he had cooperated with the IRS
during the audit of his return. This is enough to shift the
burden, though we do note that this usually doesn’t matter very
much--most cases will be decided on a preponderance of the
evidence. Shifting the burden may, however, affect the way we
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