Opinion ID: 401073
Heading Depth: 1
Heading Rank: 3

Heading: Interest Deduction

Text: 14 The Karmes' principal argument on the merits is that the tax court improperly placed the burden on them to show the legitimacy of the interest deduction. They base their argument on the recent case of Weimerskirch v. Commissioner, 596 F.2d 358 (9th Cir. 1979), where this Court held that the Commissioner was not entitled to rely solely upon a presumption of the correctness of his deficiency determination with respect to unreported income. The taxpayers here argue that without the presumption of correctness the Commissioner would not have prevailed. 15 The Government correctly points out, however, that the Commissioner in Weimerskirch offered no evidence to substantiate the deficiency determination; the burden would have been placed on the taxpayer to show that he had not received unreported income from drug sales. In that situation the Court held that the Commissioner could not benefit from a presumption of correctness. The Court required more than a naked assessment without any evidentiary foundation. Id. at 362. See United States v. Janis, 428 U.S. 433, 441-42, 96 S.Ct. 3021, 3026, 49 L.Ed.2d 1046 (1976). 16 Weimerskirch, however, is a limited exception to the general rule that the Commissioner's determinations are presumptively valid. When the Commissioner attempts to include unreported income, the Commissioner should have the burden of proving his case because the taxpayer may face practical difficulties in attempting to refute the Commissioner's assertion that the taxpayer received unreported income. Rockwell v. Commissioner, 512 F.2d 882, 886 (9th Cir.), cert. denied, 423 U.S. 1015, 96 S.Ct. 448, 46 L.Ed.2d 386 (1975). That problem does not exist when, as in this case, the Commissioner questions a deduction. In this situation the taxpayer retains the burden of proof. Id.; Herbert v. Commissioner, 377 F.2d 65, 71 (9th Cir. 1967). Further, the record shows that the Commissioner's deficiency assessment was by no means naked. Unlike Weimerskirch, the Commissioner here offered substantial evidence calling into question taxpayers' deductions. The Karmes have not demonstrated that the tax court's conclusion that the transactions lacked economic substance was clearly erroneous. Thompson v. Commissioner, 631 F.2d 642, 646 (9th Cir. 1980), cert. denied, 452 U.S. 961, 101 S.Ct. 3110, 69 L.Ed.2d 972 (1981). 17 Affirmed.