JOHN D. SHEA, Pеtitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 10841-95, 23549-96
UNITED STATES TAX COURT
Filed April 1, 1999
112 T.C. No. 14
Even though P and his wife remained married throughout 1992, R did not allocate one-half of P‘s income for 1992 to P‘s wife pursuant to California community property law.
Held: R‘s determinations of additional gross receipts and disallowance of deductions are, with certain modifications, upheld.
Held, further:
David M. Kirsch, for petitioner.
Dale A. Zusi, for respondent.
OPINION
RUWE, Judge: Respondent determined deficiencies in petitioner‘s Federal income taxes, an addition to tax, and accuracy-related penalties as follows:
| Year | Deficiency | Addition to Tax | Accuracy-related Penalty |
|---|---|---|---|
| 1990 | $155,096 | -- | $31,019 |
| 1991 | 165,529 | -- | 33,106 |
| 1992 | 138,529 | $34,632 | 27,706 |
Some of the facts have been stipulated and are so found. The first, second, third, and fourth stipulations of fact are incorporated herein by this reference. Petitioner‘s legal residence was in Campbell, California, at the time he filed his petitions. For convenience, we will combine our findings of fact with our opinion.
In each of the years in issue, petitioner was the owner and operator of an unincorporated consulting business known as Shea Technology Group, hereafter referred to as STG. Petitioner reported income and deductions from this business on Schedule C, Profit or Loss From Business, in each of the years in issue. The parties now agree that petitioner underreported STG‘s gross business receipts by $216,143 in 1990, $208,134 in 1991, and $272,902 in 1992.3
A. Schedule C Deductions
In the notices of deficiency for the years 1990, 1991, and 1992, respondent disallowed all petitioner‘s Schedule C deductions. Respondent now concedes certain of these deductions.4 We must decide which, if any, of the remaining deductions claimed by petitioner are allowable.
Deductions are a matter of legislative grace, and taxpayers bear the burden of proving that they are entitled to any deductions claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Taxpayers are required to maintain sufficient records to enable the Commissioner to determine their correct tax liability.
The regulations further clarify the stringent substantiation requirements of
For expenses other than those covered by the provisions of
Petitioner deducted Schedule C business expenses totaling $162,278 in 1990, $192,516 in 1991, and $211,709 in 1992.6 These deductions fall into two categories. One category must meet the
Regarding the deductions governed by
As to the remaining items, we find that petitioner paid and is entitled to a deduction for telephone expenses in the amounts of $7,735 for 1990 and $6,616 for 1991, in addition to the items respondent has conceded. With respect to the other claimed deductions, the only documents presented to substantiate petitioner‘s claimed business expenses were credit card summaries, charge slips showing various purchases, and a crude ledger for 1990, which appears to have been prepared from canceled checks. These credit card summaries contain personal expenses,7 what appears to be military memorabilia-related expenses, and what purports to be business expenses. Other than the credit card summaries and petitioner‘s less then credible, vague, and self-serving testimony, there is no corroborative evidence of the business purpose of these expenses. As we have stated many times before, this Court is not bound to accept a taxpayer‘s self-serving, unverified, and undocumented testimony. Tokarski v. Commissioner 87 T.C. 74, 77 (1986). While there are undoubtedly business expenses contained within the credit card
Based on the foregoing, we find that the net profit from petitioner‘s consulting business was $336,231.66 in 1990, $356,394.00 in 1991, and $443,172.00 in 1992.9
Petitioner‘s 1992 return was filed as a joint return. In the notice of deficiency, respondent changed petitioner‘s filing status from married filing jointly to married filing separately. Nevertheless, respondent determined petitioner‘s unreported income without making any adjustment for California‘s community property law. The notice of deficiency does not refer to California community property law, any exceptions to such law, or any facts that might support such exceptions.
Married persons who reside in a community property State are generally each required to report one-half of their community income for Federal income tax purposes. United States v. Mitchell, 403 U.S. 190 (1971); Drummer v. Commissioner, T.C. Memo. 1994-214, affd. without published opinion 68 F.3d 472 (5th Cir. 1995). Petitioner contends that under California law, the 1992 income generated by petitioner‘s consulting business is community income and that he is required to report and be taxed
Respondent now recognizes that all of STG‘s income is community income under California law. Respondent also stipulated that $119,204 of STG‘s net profit for 1992, the amount which was transferred to petitioner‘s and Mrs. Shea‘s household checking account in 1992, was community income reportable by each spouse in the amount of $59,602. The parties dispute whether STG‘s 1992 net profit in excess of $119,204 should all be attributed to petitioner, regardless of community property law. On brief, respondent relies solely on the provisions of
The Secretary may disallow the benefits of any community property law to any taxpayer with respect to any income if such taxpayer acted as if solely entitled to such income and failed to notify the taxpayer‘s spouse before the due date (including extensions) for filing the return for the taxable year in which the income was derived of the nature and amount of such income.
Petitioner acknowledges that
When the Commissioner attempts to rely on a basis that is beyond the scope of the original deficiency determination, the Commissioner must generally assume the burden of proof as to the new matter. A substantial body of case law has developed in this
A new theory that is presented to sustain a deficiency is treated as a new matter when it either alters the original deficiency or requires the presentation of different evidence. * * * A new theory which merely clarifies or develops the original determination is not a new matter in rеspect of which respondent bears the burden of proof. * * * [Wayne Bolt & Nut Co. v. Commissioner, 93 T.C. 500, 507 (1989); citations omitted.12]
Here, the relevant issues raised by respondent‘s notice of deficiency are the total amount of business gross receipts and whether petitioner is entitled to deductions that he claimed were incurred in his business during 1992. The only explanation stated in the notice of deficiency for increasing 1992 gross receipts is that the adjustment was based on bank deposits. All these deposits were to the business account used for petitioner‘s consulting business. The only reason for disallowing business deductions was that petitioner had not substantiated their deductibility.
Respondent failed to offer any evidence that indicated that respondent considered the application of community property law or
The factual basis required to establish whether STG‘s income was understated is different from the factual basis necessary to establish whether community property law or
Generally, the only evidence necessary to establish that income is community income is that the income was received by either spouse during the marriage while domiciled in a community property State. As we have recently stated:
The term “community property“, pursuant to California law, is generally defined as “property acquired by husband and wife, or either, during marriage, when not acquired as the separate property of either.” Under California law, absent a contrary agreement, each spouse has the right to one half of all community income from the moment it is acquired and therefore is liаble for the Federal income tax on one half of such amount.
The character of property as separate or community is determined at the time of acquisition. Property acquired by purchase after marriage is presumed to be community property. Furthermore, earnings of a husband acquired during marriage are presumed to be community property. With respect to unearned income, where the source property is presumed to be community property, and no evidence is introduced to rebut such presumption, then the income from such property is presumed community income. Under California law, the burden of proving that property is separate rests on the party making such assertion. [Webb v. Commissioner, T.C. Memo. 1996-550; citations omitted.]
On the other hand, whether respondent may apply
However, on brief respondent relies on Abatti v. Commissioner, 644 F.2d 1385 (9th Cir. 1981), revg. T.C. Memo. 1978-392.16 Based on Abatti, respondent argues that the proper test for determining whether respondent has introduced a “new matter” on which he bears the burden of proof depends on whether the basis for the deficiency advanced at trial or in an amended answer is “inconsistent” with the language contained in the notice of deficiency. Based on Abatti, respondent asserts that if a notice of deficiency is broadly worded and the Commissioner later advances a theory that is “not inconsistent” with that language, the theory does not constitute a new matter, and the burden of proof remains with the taxpayer.
In Abatti v. Commissioner, supra, the Court of Appeals for the Ninth Circuit characterized the notice of deficiency as a notice that “informed the taxpayers that there were deficiencies
This type of notice is sufficient to raise the presumption of correctness and to place the burden of proof on the taxpayer. Barnes v. CIR, 408 F.2d 65 (7th Cir.), cert. denied, 396 U.S. 836 (1969). Judge Hand, in Olsen v. Helvering, supra, stated, “the notice is only to advise the person who is to pay the deficiency that the Commissioner means to assess him; anything that does this unequivocally is good enough.” [Id. at 1389-1390 citation omitted.]
The court went on to state:
In fact, if a deficiency notice is broadly worded and the Commissioner later advances a theory not inconsistent with that language, the theory does not constitute new matter, and the burden of proof remains with the taxpayer. [Id. at 1390.]
We have recognized that the above-quoted language from Abatti v. Commissioner, supra, may represent a standard for determining what constitutes a “new matter” that is at variance with the current standard articulated by this Court. See Achiro v. Commissioner, 77 T.C. 881, 890-891 (1981);17 Yamaha Motor Corp.,
Petitioner acknowledges that the Court of Appeals’ opinion in Abatti v. Commissioner, supra, contains broad language but argues that the subsequent enactment of section 7522 abrogated that broad language by requiring specificity in respondent‘s notices of deficiency. Section 7522, which was applicable to the notice of deficiency in this case,19 provides:
SEC. 7522. CONTENT OF TAX DUE, DEFICIENCY, AND OTHER NOTICES.
(a) General Rule.--Any notice to which this section applies shall describe the basis for, and identify the amounts (if any) of, the tax due, interest, additional amounts, additions to the tax, and assessable penalties included in such notice. An inadequate description under the preceding sentence shall not invalidate such notice.
(b) Notices to Which Section Applies.--This sеction shall apply to--
- any tax due notice or deficiency notice described in section 6155, 6212, or 6303,
- any notice generated out of any information return matching program, and
- the 1st letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals. [Emphasis added.]
Congress enacted section 7522 with the expectation that the IRS would “make every effort to improve the clarity of all notices * * * that are sent to taxpayers.” H. Conf. Rept. 100-1104, at 219 (1988), 1988-3 C.B. 473, 709. Petitioner argues that respondent‘s failure to state specifically that petitioner was being denied the benefits of community property law or to describe a basis for denying petitioner the benefits of community property law violates section 7522 and warrants treating the section 66(b) issue as a new matter on which respondent bears the burden of proof.
Respondent argues that there was no violation of section 7522 because reliance on section 66 was “implicit” in the notice
Section 7522, which was enacted after the Abatti decision, requires that a notice of deficiency “describe the basis” for the tax deficiency.20 Section 7522 makes no exception for a basis
Generally, the Commissioner‘s determination in a notice of deficiency is presumеd correct. The purpose of section 7522 is to give the taxpayer notice of the Commissioner‘s basis for determining a deficiency. A taxpayer is given 90 days from the day the notice of deficiency is mailed in which to file a petition with the Tax Court. Sec. 6213(a). Rule 34(b) sets forth what is required to be included in a petition. Among its requirements are that the petition shall contain:
(4) Clear and concise assignments of each and every error which the petitioner alleges to have been committed by the Commissioner in the determination of the deficiency or liability. The assignments of error shall include issues in respect of which the burden of proof is on the Commissioner. Any issue not raised in the assignment of error shall be deemed to be conceded. Each assignment of error shall be separately lettered.
(5) Clear and concise lettered statements of the facts on which petitioner bases the assignments of error, except with respect to those assignments of error as to which the burden of proof is on the Commissioner. [Rule 34(b).]
Without notice of the Commissioner‘s basis for a determination of deficienсy, it would be difficult, if not impossible, to comply with Rule 34(b).
We have previously held that new matter is raised when the basis or theory on which the Commissioner relies was not stated or described in the notice of deficiency and the new theory or basis requires the presentation of different evidence. Wayne Bolt & Nut Co. v. Commissioner, 93 T.C. at 507. This rule for determining whether a new matter has been raised by the Commissioner is consistent with, and supported by, the statutory requirement that the notice of deficiency “describe the basis” for the Commissioner‘s determination. This rule also provides a reasonable method for enforcing the requirements of section 7522.21
In the instant case, the notice of deficiency does not describe section 66(b) as respondent‘s basis for disallowing the
Respondent argues that he has met that burden and that the following facts demonstrate that petitioner treated the income as if he were solely entitled to it: (a) Gross receipts were
The facts on which respondent relies, either taken alone or taken together, do not justify the conclusion that petitioner acted as if he were solely entitled to business income. The fact that business gross receipts are deposited into a business account is in accordance with normal business practice. Mrs. Shea was clearly aware of the existence of petitioner‘s business and its bank account. The fact that not all the business income was deposited into the household account is, of itself, unremarkable. We would not find it at all unusual if less than the net profit was so deposited. The fact that Mrs. Shea did not have signing authority over the business account is likewise unremarkable given the fact that she had little day-to-day involvement in the operation of the business. Finally, the fact that Mrs. Shea did not know the extent of business income is not proof that petitioner was acting as if he were solely entitled to the income. Without more, it does not support respondent‘s allegation that the income was “hidden” from hеr.
The facts on which respondent relies establish only that Mrs. Shea had little meaningful involvement in petitioner‘s business activities and that petitioner underreported the income of that business. These facts are insufficient to prove that petitioner acted as if he were solely entitled to STG‘s 1992 income. As a result, there is no factual basis to justify respondent‘s invocation of section 66(b). We, therefore, hold that petitioner is entitled to the benefits of California community property law with respect to the net income of his consulting business as redetermined.
Decision will be entered
under Rule 155.
Reviewed by the Court.
COHEN, JACOBS, GERBER, PARR, WELLS, COLVIN, BEGHE, LARO, FOLEY, VASQUEZ, and GALE, JJ., agree with this majority opinion.
THORNTON and MARVEL, JJ., concur in the result only.
Expense Items Claimed on Schedule C
| 1990 | 1991 | 1992 | |
|---|---|---|---|
| Expenses subject to sec. 274(d): | |||
| Car and truck expenses | $2,615 | $2,870 | -- |
| Air travel | 29,760 | 59,785 | 1$104,340 |
| Meals away from home | 5,743 | 2,890 | 212,481 |
| Entertainment | 2,634 | 462 | -- |
| Lodging | 15,131 | 12,366 | -- |
| Other expenses: | |||
| Car rental3 | 11,941 | 13,136 | -- |
| Depreciation | 5,314 | 5,806 | 6,652 |
| Insurance | 9,904 | 9,433 | -- |
| Office expense | 4,198 | 11,120 | 15,696 |
| Legal and professional services | 1,400 | 5,964 | 10,772 |
| Rent or lease | |||
| a. vehicles, machinery, and equipment | 26,200 | 11,200 | -- |
| b. other business property | -- | -- | 14,325 |
| Repairs and maintenance | 2,064 | 4,903 | -- |
| Trade shows | 841 | 3,460 | 3,690 |
| Research | 5,118 | 22,287 | 4,701 |
| Parking | 415 | 420 | -- |
| Telcon [sic] | 9,061 | 7,544 | 19,733 |
| Professional services (other) | 8,934 | 9,218 | -- |
| Dues and publications | 410 | 865 | -- |
| Software | -- | 759 | 8,678 |
| Courier | -- | -- | 4,041 |
| Charity contribution | -- | -- | 2,860 |
| Printing | 20,595 | 5,424 | -- |
| Commission and fees | -- | -- | 3,740 |
| Total | 162,278 | 4189,912 | 211,709 |
1For the taxable year 1992, air travel also includes lodging.
2For the taxable year 1992, meals away from home combined meals and entertainment.
3Some items in this category would have been subject to sec. 274. Since none of the expenses were substantiated under sec. 162, it was unnecessary to subdivide the category further.
4For the taxable year 1991, petitioner inexplicably reported total expenses of $192,516 on line 28 of Schedule C.
The Term “New Matter”
(a) General: The burden of proof shall be upon the petitioner, except as otherwise provided by statute or determined by the Court; and except that, in respect of any new matter, increases in deficiency, аnd affirmative defenses, pleaded in the answer, it shall be upon the respondent. * * *
The majority recognizes that “[a] substantial body of case law has developed in this Court setting forth criteria for determining when the Commissioner is raising a ‘new matter‘.” Majority op. pp. 14-15. An examination of that case law reveals a disjunctive test to determine whether a new theory raised in respondent‘s answer is new matter for purposes of
The assertion of a new theory which merely clarifies or develops the original determination without being inconsistent or increasing the amount of the deficiency is not a new matter requiring the shifting of the burden of proof. * * * However, if
the assertion in the amended answer either alters the original deficiency or requires the presentation of different evidence, then respondent has introduced a new matter. * * *
A new theory may or may not constitute new matter. A new theory in the answer is new matter if either (1) the new theory is inconsistent with the notice (the inconsistency alternative), or (2) it requires the presentation of different evidence, i.e., evidence different from that necessary to prove a well-pleaded assignment of error (the different evidence alternative). It is illogical, and defies common sense, to believe that, in the case of a disjunctive test such as our test for new matter, the failure to satisfy one alternative precludes the possibility of satisfying the other. For instance, it does not not follow from Achiro that, if a new theory is consistent with the notice, then it cannot be new matter. A finding that a new theory is consistent with the notice simply leads to the conclusion that the new theory is not new matter pursuant to the inconsistency alternative; it does not foreclose the possibility that the new theory could be new matter pursuant to the different evidence alternative.
Golsen Doctrine
The majority finds, and I agree, that “[b]ased on our previously articulated test for determining whether respondent‘s reliance on section 66(b) is new matter, we would hold that it is
An examination of Abatti and subsequent Ninth Circuit authority leads me to believe that the Golsen doctrine does not bar us from applying our traditional interpretation. In Abatti, the Ninth Circuit was reviewing our application of our
determination is not broad enough to include the new ground, its presumptive correctness does not then extend to such new matter, which he [the Commissioner] is required to raise affirmatively in his answer. Under the Tax Court rules, the burden of proof as to it is expressly placed upon respondent. * * *
But when the determination is made in indefinite and general terms, and is not inсonsistent with some position necessarily implicit in the determination itself, the situation is quite different. * * *
29 T.C. at 969. In Sorin, the different evidence alternative was not under consideration. We held that the burden of proof should remain on the taxpayer because, contrary to the taxpayer‘s contention, the Commissioner had not taken a position inconsistent with the notice. The Ninth Circuit reached a similar result in Abatti. There, too, the taxpayer did not
Stewart v. Commissioner, 714 F.2d 977 (9th Cir. 1983), affg. T.C. Memo. 1982-209, is a post-Abatti case that also required the Ninth Circuit to interpret
I agree with the majority that, pursuant to the different evidence alternative, respondent‘s reliance on section 66(b) is new matter within the meaning of
Why Section 7522?
Instead of holding that respondent‘s reliance on section 66(b) is new matter pursuant to our case law, and in accord with the Ninth Circuit‘s opinion in Stewart, the majority makes various analytical errors, which I feel compelled to address. First, the majority incorporates the legislative mandate of section 7522, that the notice of deficiency shall describe an adequate basis, into the definition of “new matter“. Imposition of the burden of proof is, in the absence of a legislative directive, a judicial function. The majority seems to believe that section 7522 should influence the Ninth Circuit in determining what constitutes new matter. See majority op. p. 23.
Looking Beyond the Notice of Deficiency
My second concern with the majority‘s analysis is its suggestion that there may be a case in which the Commissioner‘s intent in drafting the notice of deficiency will determine whether a new theory is new matter under either the inconsistency or different evidence alternatives. The majority states: “Respondent failed to offer any evidence that indicated that respondent considered the application of community property law or section 66(b) in making his determination.” Majority op. p. 16. The majority then finds: “[R]espondent gave no thought to community property law or section 66(b) when the notice of deficiency was prepared.” Id. at 17. That finding, the majority continues, “supports our conclusion that section 66(b) was not implicit in the notice of deficiency.” Id. Although the majority makes obeisance to the determining force of the notice‘s language (“The objective language in the notice of deficiency remains the controlling factor.” Id.), the fact that the majority finds “support” in respondent‘s failure to consider section 66(b) suggests that intent has some role in determining whether a new theory is a new matter. If intent plays some role, then there is the possibility that, in a close case, intent (or lack thereof) could tip the balance. I disagree, and think that the majority
Consider two taxpayers, each with unreported income, each married and filing separately, and each residing in a community property jurisdiction. Each receives an identical notice determining a deficiency in income tax on account of the omission of $100 in gross income. The notices do not mention section 66(b). Each taxpayer concedes receipt of the $100 and its taxable nature. Each pleads, nevertheless, that, as the receipt was community property, he is taxable only on one-half. In one case, in determining the deficiency, it was the Commissioner‘s intention (unexpressed in the notice) to disallow the benеfits of community property under section 66(b). In the second case, the Commissioner was unaware that the receipt was community property. He becomes aware only after his right to amend the answer without leave of Court has expired. See
Conclusion
I fail to see what the majority‘s analysis adds to the jurisprudence of this Court, when attention to Golsen v. Commissioner, supra, would allow us to dispose of this issue without discussing section 7522 or respondent‘s intent. The Court is always free to place the burden of рroof on respondent pursuant to the first sentence of
CHABOT, WHALEN, and CHIECHI, JJ., agree with this concurring in result opinion.
I write on to respond to some of the objections to the majority opinion expressed in Judge Halpern‘s concurrence.
Judge Halpern‘s normative explication of the disjunctive tests for new matter--inconsistency and different evidence--is impeccable so far as it goes. But he pays inadequate attention to another strand in the Tax Court‘s jurisprudence on this subject, exemplified by Sorin v. Commissioner, 29 T.C. 959 (1958), affd. per curiam 271 F.2d 741 (2d Cir. 1959), that the Court of Appeals for the Ninth Circuit relied upon, along with Judge Learned Hand‘s opinion in Olsen v. Helvering, 88 F.2d 650, 651 (2d Cir. 1937), to reverse us for our shifting of the burden of proof in Abatti v. Commissioner, 644 F.2d 1385 (9th Cir. 1981), revg. T.C. Memo. 1978-392. That strand is to the effect that a vaguely broad notice that does no more than state an intention to assess a deficiency in a specified amount is not just a valid notice. It‘s an empty bottle that can be filled and made specific with any theory and won‘t thereby be considered an inconsistent theory or as requiring different evidence so as to justify the shifting of the burden of proof to the Commissioner.
In so using section 7522(a), I frankly am impelled by pragmatic considerations. Commentators have suggested that the present situation is unsatisfactory because it encourages--even rewards--vagueness and imprecision in the Commissioner‘s deficiency notices and discourages the specificity that tells taxpayers the points they must put in issue in their petitions and prove at trial. It‘s appropriate to use section 7522(a) as the device for repudiating the line of cases represented by Sorin v. Commissioner, supra.
There‘s a theоretical as well as a pragmatic justification for so using section 7522(a) that answers the questions posed in Judge Halpern‘s concurrence, pp. 36-37. Judge Halpern follows up the general question--Just what is section 7522(a) supposed to accomplish?--by asking what justifies our decision to sanction a vague notice by shifting the burden of proof when the Commissioner‘s theory is finally put forth, as opposed to applying some other sanction, such as extending the period of limitations or awarding attorney‘s fees. The answer, I submit, is that shifting the burden on the ground that the theory, once stated by the Commissioner, constitutes “new matter” is an
Section 7522(a) was a signal from Congress that vague notices would thenceforth be disfavored. Shifting the burden of proof to the Commissioner under section 7522(a) is an appropriate way to implement the not too clearly expressed intent of Congress. In this regard, the “imaginative reconstruction” applied by Judge Learned Hand in other contexts, see, e.g., Lehigh Valley Coal Co. v. Yensavage, 218 F. 547, 553 (2d Cir. 1914) (“Such statutes are partial * * * they should be construed, not as theorems of Euclid, but with some imagination of the purposes which lie behind them.“), and espoused by Judge Posner, as well as by our own Judge Raum, points the direction in which we and the courts of appeals should go. See Posner, Statutory Interpretation--in the Classroom and in the Courtroom, 50 U. Chi. L. Rev. 800, 817 (1983).
Notes
(continued...) (...continued) Beghe, J., concurring p. 42. Witness the case at bar, where the majority has found that, under the different evidence alternative, respondent raised new matter relative to his vaguely broad notice by trying, with consent, the sec. 66(b) issue. It seems a sufficient and appropriate response to Judge Beghe‘s concern to say that, if a new theory is both not inconsistent with a notice of deficiency and does not require different evidence, petitioner has not been prejudiced by such new theory. Therefore, notwithstanding that the notice may be an “empty bottle“, there is no harm requiring redress.that a vaguely broad notice that does no more than state an intention to assess a deficiency in a specified amount is not just a valid notice. It‘s an empty bottle that can be filled and made specific with any theory and won‘t thereby be considered an inconsistent theory or as requiring different evidence so as to justify the shifting of the burden of proof to the Commissioner.
(d)Substantiation Required.--No deduction or credit shall be allowed--
(1) under
section 162 or212 for any traveling expense (including meals and lodging while away from home),(2) for any item with respect to an activity which is of a type generally considered to constitute entertainment, amusement, or recreation, or with respect to a facility used in connection with such an activity,
(3) for any expense for gifts, or
(4) with respect to any listed property (as defined in
section 280F(d)(4) ),
unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer‘s own statement (A) the amount of such expense or other item, (B) the time and place of the travel, entertainment, amusement, recreation, or use of the facility or property, or the date and description of the gift, (C) the business purpose of the expense or other item, and (D) the business relatiоnship to the taxpayer of persons entertained, using the facility or property, or receiving the gift. The Secretary may by regulations provide that some or all of the requirements of the preceding sentence shall not apply in the case of an expense which does not exceed an amount prescribed pursuant to such regulations. This subsection shall not apply to any qualified nonpersonal use vehicle (as defined in subsection (i)).
| 1990 | 1991 | 1992 | |
|---|---|---|---|
| Reported receipts | $176,389.00 | $187,427.00 | $172,078.00 |
| Unreported receipts | 216,143.00 | 208,134.00 | 272,902.00 |
| (continued...) | |||
| Less: | |||
| Conceded deductions | 48,565.34 | 32,551.00 | 1,808.00 |
| Additional allowable deductions | 7,735.00 | 6,616.00 | 0.00 |
| Net profit | 336,231.66 | 356,394.00 | 443,172.00 |
(a) General: The burden of proof shall be upon the petitioner, except as otherwise provided by statute or determined by the Court; and except that, in respect of any new matter, increases in deficiency, and affirmative defenses, pleaded in the answer, it shall be upon the respondent. As to affirmative defenses, see Rule 39.
(continued...) (...continued) respondent to establish all the elements necessary to support his allocation under section 482. See Rubin v. Commissioner, 56 T.C. 1155, 1162-1164 (1971), affd. 460 F.2d 1216 (2d Cir. 1972);if respondent does not indicate in the notice of deficiency that he is relying on section 482, but alerts the taxpayer of his reliance on section 482 formally in pleadings far enough in advance of trial so as not to prejudice the taxpayer or take him by surprise at trial, then the burden of proof shifts to
Despite our holding in Achiro, hоwever, we will follow the precedent established in the court to which an appeal would lie. See Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1974). Appeal in this case would lie in the Ninth Circuit.
(continued...)The Tax Court has jurisdiction only when the Commissioner issues a valid deficiency notice, and the taxpayer files a timely petition for redetermination. “A valid petition is the basis of the Tax Court‘s jurisdiction. To be valid, a petition must be filed from a valid statutory notice.” Stamm International Corp. v. Commissioner, 84 T.C. 248, 252 (1985). See Midland Mortgage Co. v. Commissioner, 73 T.C. 902, 907 (1980). [Scar v. Commissioner, 814 F.2d 1363, 1366 (9th Cir. 1987), revg. on other grounds 81 T.C. 855 (1983); emphasis added.]