David M. Sears and Carol L. McCabe - Page 8

                                        - 7 -                                         
         * * * 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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