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activities with Sierra. Instead, he relied on records maintained
by Sierra, which were destroyed in the fall of 2004.
The Schedule D, Capital Gains and Losses, attached to their
2001 return reported an amount realized of $600,000 from the sale
of their Berlin house and a corresponding adjusted basis of
$600,000. The Schedule D did not report the sale of the South
Point Road lot. The Schedule E, Supplemental Income and Loss,
reported a loss from the Boonsboro Partnership of $45,733.
On September 19, 2005, respondent issued petitioners a
notice of deficiency, disallowing petitioners’ Schedule C
expenses and Schedule E loss. Respondent also adjusted
petitioners’ income to include a capital gain of $660,371 on the
sale of the Berlin house and the South Point Road lot.
OPINION
A. Burden of Proof
Generally the taxpayer bears the burden of proving the
Commissioner’s determinations are erroneous. Rule 142(a).
However, the burden of proof with respect to a factual issue
relevant to the liability of a taxpayer for tax may shift to the
Commissioner under section 7491(a) if the taxpayer has produced
credible evidence relating to the issue, has met his
substantiation requirements, maintained records, and cooperated
with the Secretary’s reasonable requests for documents,
witnesses, and meetings.
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