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II. Income Tax Deficiencies - Unreported Income
The Internal Revenue Code imposes a Federal tax on the
taxable income of every individual. Sec. 1. Section 61(a)
defines gross income for purposes of calculating taxable income
as “all income from whatever source derived”. Respondent has
determined that petitioners were required to include in their
gross income, and failed to report on their Forms 1040, the
receipts they instead attributed to HGAMC.
A. Burden of Proof
As a general rule, the Commissioner’s determinations are
presumed correct, and the taxpayer bears the burden of proving
error therein. Rule 142(a); Welch v. Helvering, 290 U.S. 111,
115 (1933). Although section 7491(a) may shift the burden to the
Commissioner with respect to factual issues where the taxpayer
introduces credible evidence, the provision operates only where
the taxpayer establishes that he or she has complied with all
substantiation requirements, has maintained all required records,
and has cooperated with reasonable requests for witnesses,
information, documents, meetings, and interviews. Here, as
indicated above, petitioners were not forthcoming during the
examination of their returns. Section 7491(a) therefore effects
no shift of burden in the instant cases.
However, an additional limitation on the general rule
potentially bears upon the cases at bar. Various Courts of
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