Philip Jensen
Daleville, Alabama

David M. McCallum
Attorney (Greensboro, Group 1)
Department Of The Treasury
320 Federal Place, Room 509
GREENSBORO, NORTH CAROLINA 27401

Re: Philip J., Docket No. # 168xxx

Dear Mr. McCallum

1. The Restructuring and Reform Act passed by Congress on July 22, 1998 added IRC §7491 which shifts the burden of proof from the tax payer to the Service under some conditions. The old common law rule that placed the burden of evidence in tax cases on the tax victim and not the tax collector has been some what ameliorated.

2. See Griffin v. Commissioner, 315 F. 3d 1017 (8th Cir. 2003) we hold that “credible evidence” for purposes of interpreting and applying 7491 (a) (1), is “the quality of evidence which, after critical analysis, the court would find sufficient upon which to base a decision on the issue if no contrary evidence were submitted (without regard to the judicial presumption of IRS correctness).” Brief for Appellee at 22 (emphasis added); accord Okerlund v. United States, 53 Fed. CI. 341, 356 n. 23 (Fed. CI. 2002) (adopting same definition based upon legislative history). Viewing appellants testimony in the absence of any evidence or presumption to the contrary, we conclude that appellants did produce sufficient “credible evidence” ….

3. Also the respondent incorrectly relies on the IRS presumption of correctness as though they need no link between the Notice of Deficiency and the actual unreported income statements. See, Weimerskirch v. Commissioner, 596 F. 2d 358, 361-362 (9th Cir. 1979), revg. 67 T.C. 672 (1977). The court of Appeals for the Ninth Circuit has determined that in order for the presumption of correctness to attach to the deficiency determination in unreported income cases, the Commissioner must establish “some evidentiary foundation” connecting the taxpayer with the income-producing activity, or demonstrate the taxpayer received unreported income, Edwards v. Commissioner, 680 F. 2d 1268, 1270 (9th Cir. 1982); Malfatti v. Commissioner, T.C. Memo. 2005-19. A deficiency determination which is not supported by some evidentiary foundation is arbitrary and erroneous. Weimerskirch v. Commissioner, supra at 362. Under such circumstances, the Commissioner has the burden of coming forward with evidence to establish the existence and amount of any deficiency. Jackson v. Commissioner, 73 T.C. 394, 401 (1979).