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* * * apparently even illegal things going on by some of the
people who were connected with the company.”7
Petitioners filed their joint 2000 Federal income tax return
on or about August 13, 2001. They reported gross income of
$2,713 and expenses of $17,464 from the RTP activity, for a loss
of $14,751. Petitioners did not have RTP prepare the return,
according to Mr. Sears, because RTP had been “shut down” before
that time.
Respondent determined that the RTP activity was not a trade
or business for Federal income tax purposes because it was not
engaged in for profit. Respondent disallowed petitioners’
claimed expense deductions, except to the extent of gross income
from the activity. As an alternative position, respondent
disallowed certain claimed expense deductions for lack of
substantiation.
Discussion
In general, the Commissioner’s determinations set forth in a
notice of deficiency are presumed correct, and the taxpayer bears
the burden of showing that the determinations are in error. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Pursuant
to section 7491, the burden of proof as to factual matters shifts
7 The stipulation of facts states that three people pleaded
guilty to crimes related to their involvement with RTP. The
crimes include conspiracy to commit mail and wire fraud;
assisting, counseling, and advising in the preparation of a false
and fraudulent tax return; and defrauding the IRS.
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