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INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec.
1.6001-1(a), Income Tax Regs. As a general rule, the
Commissioner’s determination of a taxpayer’s liability in the
notice of deficiency is presumed correct, and the taxpayer bears
the burden of proving that the determination is improper. See
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
However, pursuant to section 7491(a)(1), the burden of proof on
factual issues that affect the taxpayer’s tax liability may be
shifted to the Commissioner where the “taxpayer introduces
credible evidence with respect to * * * such [factual] issue”.
The burden will shift only if the taxpayer has, inter alia,
complied with substantiation requirements pursuant to the
Internal Revenue Code and “cooperated with reasonable requests by
the Secretary for witnesses, information, documents, meetings,
and interviews”. Sec. 7491(a)(2). Petitioners did not comply
with the substantiation requirements, and failed to present
credible evidence at trial. Accordingly, the burden remains on
petitioners.
II. Gambling
Gross income includes all income from whatever source
derived, including gambling. See sec. 61; McClanahan v. United
States, 292 F.2d 630, 631-632 (5th Cir. 1961). In the case of a
taxpayer not engaged in the trade or business of gambling,
gambling losses are allowable as an itemized deduction, but only
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