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on the characterization properly attaching to certain payments
originating with Paulan, a partnership, and ultimately received
by Sidal, an S corporation. Those payments were made on various
dates beginning in 1997 and ending in 2000 (the 1997-2000
payments). In all but one instance, the 1997-2000 payments were
made directly by Paulan to Sidal (the Paulan direct payments).
In that one instance (the wire transfer payments), payment by
Paulan was made indirectly, through petitioners to Sidal. The
Paulan direct payments totaled $4,043,000, and the wire transfer
payments totaled $2 million. We must determine the extent, if
any, to which the 1997-2000 payments provided petitioners with
bases in Sidal.
II. Burden of Proof
A. Section 7491
In general, the taxpayer bears the burden of proving that
the Commissioner’s determinations in the deficiency notice are in
error. See Rule 142(a)(1). Section 7491(a)(1) provides,
however, that “[i]f * * * a taxpayer introduces credible evidence
with respect to any factual issue relevant to ascertaining * * *
[the taxpayer’s proper tax liability]”, the burden of proof with
respect to that issue shall be on the Commissioner. See also
Rule 142(a)(2). Credible evidence is evidence the Court would
find sufficient upon which to base a decision on the issue in
favor of the taxpayer if no contrary evidence were submitted.
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