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action, we are not free to correct any perceived unfairness
stemming from a rationally based policy choice. In Valenti v.
Commissioner, T.C. Memo. 1994-483, the Court noted that treating
businesses based on wagering and gambling differently from other
businesses is a rational differentiation and not one that rises
to the level of being violative of due process or equal
protection. See also Steward Mach. Co. v. Davis, 301 U.S. 548,
584 (1937) (holding that Congress, like the states, has the
freedom to tax businesses differently). Thus, it has been held:
[A] classification that differentiates the business of
gambling from other business has “a rational basis, and when
subjected to judicial scrutiny, it must be presumed to rest
on that basis if there is any conceivable state of
facts which would support it.” * * *
Valenti v. Commissioner, supra (quoting Carmichael v. Southern
Coal Co., 301 U.S. 495 (1937)).
II. Substantial Understatement of Tax
With respect to a taxpayer’s liability for any penalty,
section 7491(c) places on the Commissioner the burden of
production, thereby requiring the Commissioner to come forward
with sufficient evidence indicating that it is appropriate to
impose the penalty. See Higbee v. Commissioner, 116 T.C. 438,
446-447 (2001). Once the Commissioner meets his burden of
production, the taxpayer must come forward with persuasive
evidence that the Commissioner’s determination is incorrect. See
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