- 44 -
been approved by the majority of the Courts of Appeals. See
Golsen v. Commissioner, 54 T.C. 742, 757 (1970), affd. 445 F.2d
985 (10th Cir. 1971).
The first requirement for the exception to apply is that the
taxpayers challenge the notice of deficiency on grounds that it
is arbitrary. In addition to raising the argument, this
generally requires that the taxpayers actually dispute that they
received the unreported income, either by filing a Form 1040 that
they signed under penalty of perjury for the year at issue or by
stating facts that tend to show that they did not in fact receive
the disputed income. Andrews v. Commissioner, T.C. Memo. 1998-
316; White v. Commissioner, T.C. Memo. 1997-459. But see Senter
v. Commissioner, T.C. Memo. 1995-311.
Petitioners have satisfied this requirement. They allege in
their petition that the notice of deficiency was arbitrary as to
all determinations relating to 1999, and they filed a signed Form
1040 for 1999 that did not include a $15,000 capital gain.
The second requirement for the exception to apply is that
the Commissioner introduced no substantive evidence but relied
solely on the presumption of correctness. Jackson v.
Commissioner, supra. The presumption of correctness will apply
5(...continued)
taxpayer must come forward with substantive evidence that the
determination is arbitrary to satisfy that initial burden.
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