Dennis L. and Margaret J. Knudsen - Page 20




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                                       OPINION                                        
         I.   Burden of Proof                                                         
              Petitioners argue that the burden of proof should be shifted            
         to respondent under section 7491(a) because petitioners produced             
         credible evidence and satisfied the requirements of section                  
         7491(a)(2).                                                                  
              Generally, the Commissioner’s determinations are presumed               
         correct, and the taxpayer bears the burden of proving that those             
         determinations are erroneous.  Rule 142(a)(1); Welch v.                      
         Helvering, 290 U.S. 111, 115 (1933).  Section 7491 is applicable             
         to court proceedings arising in connection with examinations                 
         commenced after July 22, 1998.  Internal Revenue Service                     
         Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.                  
         3001(c), 112 Stat. 727.  Under section 7491(a)(1), the burden of             
         proof shifts to the Commissioner, subject to certain limitations,            
         where a taxpayer introduces credible evidence with respect to a              
         factual issue relevant to ascertaining the taxpayer’s tax                    
         liability if the taxpayer introduces credible evidence regarding             
         the issue.  See Ashley v. Commissioner, T.C. Memo. 2000-376.                 
         Section 7491(a)(1) applies with respect to a factual issue only              
         if the requirements of section 7491(a)(2) are satisfied.  Section            
         7491(a)(2) requires that a taxpayer have maintained all records              
         required by the Internal Revenue Code, cooperated with reasonable            
         requests by the Secretary for witnesses, information, documents,             







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