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See Higbee v. Commissioner, 116 T.C. 438, 442 (2001); Bernardo v.
Commissioner, T.C. Memo. 2004-199 n.6. Section 7491(a)(1)
applies only if the taxpayer complies with any substantiation
requirements imposed by the Internal Revenue Code, maintains all
required records, and cooperates with the Commissioner for
witnesses, information, documents, meetings, and interviews.
Sec. 7491(a)(2)(A) and (B). The taxpayer bears the burden of
proving compliance with the conditions of section 7491(a)(2)(A)
and (B). H. Conf. Rept. 105-599, at 240 (1998), 1998-3 C.B. 747,
994.
B. Arguments of the Parties
Petitioners argue that the burden of proof with respect to
the basis issue shifts to respondent because they complied with
all of the conditions of section 7491(a)(2) and presented
credible evidence of sufficient bases in Sidal to sustain their
passthrough deductions for the audit years. Although respondent
concedes that petitioners complied with the record maintenance
and cooperation requirements of section 7491(a)(2)(B), he argues
that petitioners did not comply with the substantiation
requirement of section 7491(a)(2)(A), and that, therefore, the
burden of proof on the basis issue remains with petitioners.
Respondent also argues that petitioners failed to introduce
credible evidence of their bases in Sidal during the audit years.
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