MEMORANDUM OPINION
RUWE, Judge: Respondent determined the following deficiencies and additions to tax:
| | Additions to Tax |
| Year | Deficiency | Sec. 6651 | Sec. 6653(a)(1)(A) | Sec. 6653(a)(1)(B) | Sec. 6654 |
| 1987 | $ 6,403 | $ 1,601 | $ 320 | 50 percent of the | $ 346 |
| | | | interest due on |
| | | | $ 6,403 |
| | Additions to Tax |
| Year | Deficiency | Sec. 6651 | Sec. 6653(a) | Sec. 6654 |
| 1988 | $ 6,662 | $ 1,666 | $ 333 | $ 426 |
| 1989 | 6,836 | 1,709 | -- | 462 |
| | Additions to Tax |
| Year | Deficiency | Sec. 6651 | Sec. 6654 |
| 1990 | $ 6,928 | $ 1,732 | $ 456 |
| 1991 | 7,238 | 1,810 | 416 |
The issues we must decide are whether these determinations are entitled to the normal presumption of correctness, and if not, who bears the burden of proof.
Petitioner resided in Dallas, Texas, at the time the petition was filed. Petitioner appeared at the time set for trial, but chose not to testify and no other witnesses were called by either party. 1 As a result, the case was submitted on the following stipulated facts.
On January 31, 1992, Internal Revenue Agent Betty Ramsey wrote to petitioner stating: We have no record of receiving your tax returns for the years 1987, 1988, 1989, and 1990. If you have filed these returns, please forward a copy of each of these returns within ten days in the enclosed envelope.
If you have not filed returns for these years, we are not soliciting the returns. We are merely trying to make a determination as to whether you were required to file these returns. Because I will need additional information to make a determination as to whether any of these returns should be filed, I am scheduling a second appointment with you at 8:30 a.m., on February 19, 1992, at 900 St. Paul, Richardson, Texas, Room 210.
Since you missed the December 5, 1991, scheduled appointment at my office, I will expect to see you on February 19, 1992.
Please direct any correspondence to the address shown above. If you have any questions please call me at (214) 655-3557.
On February 14, 1992, petitioner sent the following response to Ms. Ramsey. I received your letter dated January 31, 1992. You have requested that I meet with you on February 19, 1992. Also, you have stated that you need "additional information".
You do not state what legal obligation I have to attend this meeting. Furthermore, I cannot give any information without the assistance of Counsel. Since, at this time, I cannot afford counsel, I will not be able to attend your meeting.
On December 8, 1992, an Internal Revenue Service Summons (Form 2039) was served on petitioner requiring him to appear before Internal Revenue Agent Prasat Visoon on January 4, 1993, to give testimony and to provide information necessary to complete his 1987 through 1991 returns. The summons specifically called for the production of the following: 1. Copies of all Forms W-2's or 1099's received in 1987, 1988, 1989, 1990, & 1991.
2. All bank statements, deposit slips and cancelled checks (both business and personal) for the inclusive periods December 1986 through January 1992.
3. All savings account passbooks or statements, certificates of deposit, money market certificates. Also information concerning other invested funds such as stock purchases or sales, or bond holdings, for the inclusive periods January 1987 through December 1991.
4. All books, journals, ledgers, and summaries concerning your income, expenses, and deductions for years 1987 through 1991.
5. Records for all loans (both business and personal) received during the years under examination. (1987 through 1991)
6. Records concerning all loan payments made during the years under examination. (1987 through 1991)
7. Purchase invoices and/or closing statements covering acquisitions of capital items acquired during the years under examination. This includes both real and personal property (1987 through 1991)
8. Information on any nontaxable income received during the years under examination. (1987 through 1991)
On January 4, 1993, petitioner appeared before Agents Visoon and Floyd Summers and objected to the production of the information required by the summons and asserted his constitutional rights under the Fourth, Fifth, Sixth, and Fourteenth Amendments, plus any other rights that he might have. No summons enforcement action was filed in the United States District Court to require petitioner to comply with the summons.
The notices of deficiency for the years in issue were mailed to petitioner on March 7, 1994. The explanation of adjustments in the notices of deficiency contains the following information:
In the absence of adequate records, your taxable gross receipts have been computed on the basis of your prior earnings record in conjunction with the Consumer Price Index (CPI). Since you neglected to file income tax returns for the taxable years, your taxable income is increased as computed below:
| 1987 | 1988 | 1989 | 1990 |
| Base year income-1984 | $ 22,710 | $ 22,710 | $ 22,710 | $ 22,710 |
| x CPI increase | 1.082454 | 1.11314 | 1.14573 | 1.19942 |
| Gross income | $ 24,583 | $ 25,279 | $ 26,020 | $ 27,239 |
| 1991 |
| Base year income-1984 | $ 22,710 |
| x CPI increase | 1.25407 |
| Gross income | $ 28,480 |
From the sparse facts presented by the record, it is apparent that there was no evidence presented by either party regarding whether petitioner had taxable income during the years in issue. Indeed, the only facts before us relate to the events leading up to the notices of deficiency and respondent's method of computing the deficiencies. Under these circumstances, the presumption of correctness that normally attaches to the notice of deficiency and the proper allocation of the burden of producing evidence and the burden of proof become critical. 2
When a taxpayer contests a tax that has been determined by the Commissioner, the burden of proof is ordinarily on the taxpayer to show that the Commissioner's determination is in error. Rule 142(a) ; 3Welch v. Helvering, 290 U.S. 111 (1933). The party with the burden of proof will normally have the initial burden of producing evidence. Failure to produce sufficient evidence from which the trier of fact could reasonably find in favor of the party with the burden of proof would normally require judgment against that party. However, if sufficient evidence is presented to make out a prima facie case, i.e., one where the trier of fact could rationally find in favor of the party with the burden of proof, the burden of going forward with producing evidence is said to shift to the other party. If the party to whom the burden of producing evidence has shifted fails to offer additional evidence, he risks losing. 4 Notwithstanding that the burden of producing evidence can shift, we have held that "the taxpayer's burden of proof generally never shifts". Borchers v. Commissioner, 95 T.C. 82, 90 (1990) (emphasis in original), affd. 943 F.2d 22 (8th Cir. 1991).
Working in tandem with the burden of proof is the presumption of correctness that is generally given to the Commissioner's notice of deficiency. Thus, it has been stated: In essence the taxpayer's burden of proof and the presumption of correctness are for the most part merely opposite sides of a single coin; they combine to require the taxpayer to prove by a preponderance of the evidence the the Commissioner's determination was erroneous. [ Portillo v. Commissioner, 932 F.2d 1128, 1133 (5th Cir. 1991), affg. in part and revg. in part T.C. Memo. 1990-68; citations omitted.]
The Commissioner's determination is generally presumed correct, until the taxpayer produces evidence establishing that the determination is arbitrary and erroneous. This normally requires the taxpayer to produce evidence concerning the disputed transactions, because this Court generally will not look behind a notice of deficiency to examine it for the motives or methods which were used by respondent in arriving at the deficiency determination. Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324 (1974). However, an exception to this general rule is recognized by several courts of appeals for situations where the Commissioner determines that the taxpayer received income that was not reported on the taxpayer's return. The rationale for this exception is based on the recognized difficulty that the taxpayer bears in proving the nonreceipt of income. See Sealy Power, Ltd. v. Commissioner, 46 F.3d 382, 386 (5th Cir. 1995), affg. in part, revg. in part, and remanding in part T.C. Memo. 1992-168; Portillo v. Commissioner, 932 F.2d at 1133, 1134 (5th Cir. 1991);Anastasato v. Commissioner, 794 F.2d 884 (3d Cir. 1986), vacating T.C. Memo. 1985-101.
The instant case is appealable to the Court of Appeals for the Fifth Circuit. In Portillo, the Court of Appeals for the Fifth Circuit addressed the issue of whether the Commissioner's determination of unreported income should be given the normal presumption of correctness. The Court of Appeals recognized that "Justification for the presumption of correctness lies in the government's strong need to accomplish swift collection of revenues and in the need to encourage taxpayer recordkeeping", but cautioned that this governmental need "does not serve to excuse the government * * * from providing some factual foundation for its assessments." Portillo v. Commissioner, 932 F.2d at 1133. The opinion went on to state: Several courts, including this one, have noted that a court need not give effect to the presumption of correctness in a case involving unreported income if the Commissioner cannot present some predicate evidence supporting its determination. Carson, 560 F.2d at 696;Anastasato, 794 F.2d at 887; Weimerskirch v. Commissioner, 596 F.2d 358, 360 (9th Cir. 1979) ; Pizzarello v. United States, 408 F.2d 579 (2d Cir.), cert. denied, 396 U.S. 986, 90 S.Ct. 481, 24 L.Ed.2d 450 (1969). Although a number of these cases involved unreported illegal income, given the obvious difficulties in proving the non-receipt of income, we agree with the Third Circuit that this principle should apply whether the unreported income was allegedly obtained legally or illegally. See Anastasato, 794 F.2d at 887. [ Portillo v. Commissioner, 932 F.2d at 1133; fn. ref. omitted.]
In Portillo, the Court of Appeals concluded that the Government had failed to present evidence supporting its determination and "since the Commissioner failed to substantiate his charge that Portillo received cash payments * * *, the deficiency determination is clearly arbitrary and erroneous." Id. at 1134.
After the Court of Appeals for the Fifth Circuit rendered its decision, the Portillos filed a motion for litigation costs, which this Court denied. Portillo v. Commissioner, T.C. Memo. 1992-99, revd. 988 F.2d 27 (5th Cir. 1993). The Court of Appeals for the Fifth Circuit reversed. In doing so, the court elaborated on what type of evidence the Commissioner was required to produce to be entitled to the presumption of correctness. "In these types of unreported income cases, the Commissioner * * * [cannot] choose to rely solely upon the naked assertion that the taxpayer received a certain amount of unreported income for the tax period in question." Portillo, 932 F.2d at 1134. A naked assessment without any foundation is arbitrary and erroneous. United States v. Janis, 428 U.S. 433, 442, 96 S.Ct. 3021, 3026, 49 L.Ed.2d 1046 (1976). The previous panel of this Court held that the deficiency notice "lacked any ligaments of fact" and was "clearly erroneous" as a matter of law. POrtillo, 932 F.2d 1128, at page 1133 (5th Cir. 1991). There can be no clearer indication from this Court that the government's position in relying on such an unsupported notice of deficiency was not justified. * * * [ Id., 988 F.2d at 29; fn. ref. omitted.]
We note that in Portillo, the Commissioner had presented testimony of an individual (Navarro) who asserted that he had paid the disputed amount of income to Mr. Portillo, and Mr. Portillo admitted that he had failed to report some income from this source, but only to the extent the payor's testimony was corroborated by canceled checks. In defending against the Portillos' claim for litigation costs, the Commissioner argued that it was not unreasonable to have relied upon the credibility of the payor's statement. Indeed, the Special Trial Judge in this Court had found the testimony of the payor (Navarro) to be more credible than the testimony of Mr. Portillo. See Portillo v. Commissioner, T.C. Memo. 1990-68. In response, the Court of Appeals stated: The government argues that its position was reasonable in light of the facts of this case. The contention is that it was reasonable to attribute veracity to Mr. Navarro rather than Mr. Portillo. The government makes this argument despite the ruling in Portillo that this was an arbitrary and erroneous basis for a notice of deficiency. Whether Navarro made a more credible witness than Portillo is not the issue. A cursory reading of Portillo makes it clear that one person's word, i.e. "a naked assertion," is not sufficient support for a notice of deficiency. [ Portillo v. Commissioner, 988 F.2d at 28-29.]
If the uncorroborated testimony of a witness who asserts that he paid money to a taxpayer is viewed as "a naked assertion" that is insufficient to support the presumption of correctness, it must logically follow that the presumption of correctness will not be given to a determination of unreported income that is not supported by any evidence. Indeed, the Court of Appeals for the Fifth Circuit recently stated: A determination of deficiency issued by the Commissioner is generally given a presumption of correctness, which operates to place on the taxpayer the burden of producing evidence showing that the Commissioner's determination is incorrect. Several courts have recognized, however, that they need not give effect to the presumption of correctness and may instead shift the burden from the taxpayer to the Commissioner when the notice of deficiency is determined to be arbitrary or excessive. In these cases, the notice of deficiency involved a determination of unreported income, whether from legal sources, as in Portillo, or from illegal sources, as in Jackson.
We have previously recognized that the reason behind the burden-shifting principle in an unreported income case is that the taxpayer bears the difficult burden of proving the non-receipt of income. The Commissioner's determination in such a case necessarily involves reconstructing income that should have been reported, potentially leading to questionable results. If the Commissioner does not substantiate the notice's determination with some predicate evidence, therefore, the taxpayer should be relieved of the burden of going forward with the evidence. * * * [ Sealy Power, Ltd. v. Commissioner, 46 F.3d at 386; fn. refs. omitted.]
We interpret the opinions of the Court of Appeals for the Fifth Circuit to mean that the Commissioner's determination of unreported income will not be accorded the presumption of correctness unless the Commissioner provides some "predicate evidence" supporting her determination that the taxpayer received unreported income. 5 We have found that there was no evidence presented by either party regarding whether petitioner had taxable income during the years in issue. 6 Indeed, based on the explanation in respondent's notices of deficiency, her determination appears to have been based solely on the assertion that petitioner filed no returns for the years 1987 through 1991 and on an income calculation for each year based on petitioner's income in 1984, which respondent increased by using the CPI. 7 Because respondent produced no predicate evidence supporting the determination that petitioner received income during the years in issue, respondent's determination must be held arbitrary and erroneous. 8
Having found that respondent's determination was arbitrary and erroneous, we must now address whether this requires that we hold for petitioner. Since no evidence was produced to show whether or not petitioner had unreported income, the answer depends on which party bears the burden of proof or the ultimate burden of persuasion. Previously, we noted that while the burden of production often shifts, we have held that the burden of proof generally never shifts. Borchers v. Commissioner, 95 T.C. at 90. Nevertheless, there appears to be some disagreement among the circuits as to the circumstances in which the burden of proof might be shifted to the Commissioner. As the Court of Appeals for the Third Circuit observed: Courts differ on whether the burdens of production and persuasion can be shifted to the Commissioner. Most agree that if the presumption [of correctness] drops out the burden of going forward shifts to the Commissioner. However, some courts have stated that at this point the ultimate burden of persuasion, or risk of nonpersuasion, remains on the taxpayer. See Higginbotham v. United States, 556 F.2d 1173, 1176 (4th Cir. 1977);United States v. Rexach, 482 F.2d 10 (1st Cir.), cert. denied, 414 U.S. 1039, 94 S.Ct. 540, 38 L.Ed.2d 330 (1973); Sullivan, 618 F.2d at 1008. Other courts, however, have indicated that in unreported income cases the ultimate burden shifts to the Commissioner. See Keogh v. Commissioner, 713 F.2d 496, 501 (9th Cir. 1983); United States v. Stonehill, 702 F.2d at 1294; Stout v. Commissioner, 273 F.2d 345, 350 (4th Cir. 1959). In 1976, the Supreme Court noted, but did not reconcile, this conflict in the circuits. See United States v. Janis, 428 U.S. at 442, 96 S.Ct. at 3026. [ Anastasato v. Commissioner, 794 F.2d at 887.]
The Court of Appeals for the Fifth Circuit held in Portillo v. Commissioner, 932 F.2d at 1133, that once it is "established that the assessment is arbitrary and erroneous, the burden shifts to the government to prove the correct amount of any taxes owed." (Emphasis added.) In Portillo, the Commissioner's failure to produce the required predicate evidence to support the notice of deficiency resulted in a decision in the taxpayer's favor. Id. at 1134. We conclude that the rule in the Fifth Circuit Court of Appeals is that once the presumption of correctness disappears, the Commissioner bears the burden of proof. Since respondent produced no predicate evidence supporting her determination that petitioner received income during the years in issue, and because venue for appeal lies to the Court of Appeals for the Fifth Circuit, we must hold for petitioner. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971).
Decision will be entered for petitioner.