“the Commissioner was not entitled to rely solely upon the presumption of correctness” but “must offer some substantive evidence showing that the taxpayer received income from the charged activity.” (emphasis added)

3. Gatlin v. CIR, 754 F.2d 921 (Eleventh Circuit, 1985), distinguishes between deduction cases, in which the taxpayer admits to income, and unreported income cases like the instant case, for which the “ultimate burden of proof and persuasion shifts to the Commissioner”.  Gatlin states,

“[O] nce it has been shown through evidence that the Commissioner's determination is arbitrary and erroneous, the ultimate burden of proof or persuasion shifts to the Commissioner. Jackson v. Commissioner, 73 T.C. 394, 401 (1979). This situation is rare and only occurs where the Commissioner has introduced no substantive evidence, and the evidence shows that the claimed tax deficiency arising from unreported income was derived by the government from unreliable evidence. See Jackson v. Commissioner, supra ;*fn3 Weimerskirch v. Commissioner, 596 F.2d 358 (9th Cir.1979), rev'g, 67 T.C. 672 (1977). The rationale behind this rule is that a taxpayer should not bear the burden of proving a negative (no unreported income) if the Commissioner can present no substantive evidence to support his deficiency claim.” (emphasis added)

4. Portillo v. Commissioner, 932 F.2d 1128 (Fifth Circuit, 1991), stated,

“The Commissioner's determination was based solely on a Form 1099 Navarro [a third party] sent to the I.R.S. … The Commissioner merely matched Navarro’s Form 1099 with Portillo's Form 1040 and arbitrarily decided to attribute veracity to Navarro and assume that Portillo's Form 1040 was false. … [T]he Commissioner had some duty to investigate Navarro’s bald assertion of payment and determine if Navarro’s position was supported by his books, receipts, or other records.  In addition, the Commissioner failed to substantiate by any other means, such as analyzing Portillo's cash expenditures or his source and application of funds, his charge that Portillo received unreported income. Instead, the Commissioner merely chose to rely upon the presumption of correctness.  We hold in situations like this involving unreported income, the presumption of correctness does not apply to the notice of deficiency. …  [S]ince the Commissioner failed to substantiate his charge that Portillo received cash payments from Navarro, the deficiency determination is clearly arbitrary and erroneous.” (emphasis added)

5 .McManus v. Commissioner, Tax Court Memorandum 2006-57, stated,

“Petitioner did not stipulate respondent’s receipt of third-party information from Heath & Associates. In addition, the respondent was unable to provide any documentary evidence from Heath & Associates establishing that income, of any amount, was paid to petitioner. Outside of Ms. Wong’s [IRS agent]  unconvincing testimony, respondent presented no evidence proving petitioner received any income in 1996.  Although the Court of Appeals for the Ninth Circuit has not defined “some evidentiary foundation”, this Court finds that the notice of deficiency and the revenue agent’s testimony, based upon review of the administrative file for the purpose of testifying, without simultaneously providing the administrative file to the Court, is an insufficient foundation. Respondent failed to provide adequate evidence linking petitioner with the receipt of income from Heath & Associates. Therefore, the Court concludes petitioner is not liable for a deficiency of $3,548 for 1996. On the basis of the foregoing, petitioner is not liable for additions to tax under sections 6651(a)(1) and 6654.” (emphasis added)