Gary W. McDonough - Page 15

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          Internal Revenue Service Restructuring and Reform Act of 1998,              
          Pub. L. 105-206, sec. 3001(a), 112 Stat. 726.  The amendment is             
          effective for “court proceedings arising in connection with                 
          examinations commencing after” July 22, 1998.  Id. sec.                     
          3001(c)(1), 112 Stat. 727.  While the parties agree that                    
          respondent started examining TBS 89-1 before the effective date             
          of section 7491(c), the parties dispute whether respondent’s                
          examination of TBS 89-1 is the relevant examination for purposes            
          of establishing the date on which respondent started his                    
          examination as to the affected items at issue.  According to                
          respondent, the affected items were determined “in connection               
          with” the examination of TBS 89-1 and, hence, the date on which             
          that examination began is the date that is used to test whether             
          section 7491(c) applies to this case.  According to petitioner,             
          respondent’s determination of the affected items resulted from a            
          separate, non-partnership-level examination of petitioner                   
          personally and, hence, the starting date of the later examination           
          is the date to be used to determine the applicability of section            
          7491(c).  Notwithstanding which party bears the burden of                   

          production, the record must establish that it is appropriate to             
          impose the relevant penalty, addition to tax, or additional                 
          amount.  See Higbee v. Commissioner, 116 T.C. 438, 446 (2001).              
          The burden of production and proof remain on the taxpayer to                
          establish that the penalty, addition to tax, or additional amount           
          does not apply because of reasonable cause, substantial                     
          authority, or the like.  Id.; see also H. Conf. Rept. 105-599, at           
          241 (1998), 1998-3 C.B. 747, 995.                                           

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