                    112 T.C. No. 14



                UNITED STATES TAX COURT


              JOHN D. SHEA, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent


Docket Nos. 10841-95, 23549-96.       Filed April 1, 1999.


     P and his wife filed joint returns for 1990 and
1991. P submitted a delinquent return for 1992 that
was filed as a joint return. R determined that P
underreported business receipts for 1990, 1991, and
1992 based on deposits to P's bank accounts and also
disallowed business deductions claimed on P's returns.
In the notice of deficiency for 1992, R determined that
P's proper filing status for 1992 was married filing
separately.

     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. Sec. 66(b), I.R.C., authorizes
R to disallow the benefits of any community property
law to P if P acted as if he were solely entitled to
the income in question and failed to notify his wife of
the nature and amount of such income. On brief, R
relies exclusively on sec. 66(b), I.R.C., as
justification for denying the benefits of community
property law to P. However, R's notice of deficiency
contained no reference to sec. 66(b), I.R.C., nor did
it refer to any facts that would support a sec. 66(b),
                                 - 2 -


     I.R.C., determination. A determination of whether or
     not sec. 66(b), I.R.C., applies requires the
     presentation of different evidence than that necessary
     to decide the matters described in the notice of
     deficiency.

          Held: R's determinations of additional gross
     receipts and disallowance of deductions are, with
     certain modifications, upheld.

          Held, further: Sec. 7522, I.R.C., requires that a
     notice of deficiency contain a description of the basis
     for the Commissioner's tax determination. Where R
     relies on a basis that was not described in the notice
     of deficiency that requires the presentation of
     different evidence, it is "new matter" within the
     meaning of Rule 142(a), Tax Court Rules of Practice and
     Procedure. If the new matter is allowed to be raised,
     Rule 142(a), Tax Court Rules of Practice and Procedure,
     requires that R bear the burden of proof. The burden
     of proof regarding application of sec. 66(b), I.R.C.,
     is on R. R failed to meet this burden; therefore, P is
     entitled to the benefits of California's community
     property law for the taxable year 1992.


     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:


                         Addition to Tax   Accuracy-related Penalty
  Year   Deficiency      Sec. 6651(a)(1)          Sec. 6662(a)

  1990    $155,096             --                  $31,019
  1991     165,529             --                   33,106
  1992     138,529           $34,632                27,706
                               - 3 -



     Respondent determined that petitioner substantially

underreported gross receipts during the years in issue based on

deposits made to petitioner's bank accounts.     After concessions,

the issues for decision are whether petitioner has substantiated

business deductions claimed on his 1990, 1991, and 1992 Federal

income tax returns and whether petitioner is entitled to the

benefit of California's community property law in calculating his

1992 income tax liability.1   In order to decide the second issue,

we must determine whether respondent's reliance on section 66(b)2

to disregard the community property law of California raises a

"new matter" on which respondent bears the burden of proof and,

if so, whether respondent has met that burden.

     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.



     1
      Petitioner does not dispute that the addition to tax and
accuracy-related penalties apply to the deficiencies that result
from this opinion.
     2
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                - 4 -


     In each of the years in issue, petitioner was married to

Flor Shea.    Petitioner and Mrs. Shea were divorced in 1993.

Petitioner filed timely joint returns with Mrs. Shea in 1990 and

1991.    Petitioner's 1992 return was filed on March 31, 1995, as a

joint return.   In the notice of deficiency for 1992, respondent

determined that petitioner's correct filing status was married

filing separately.    The notice also contains various

consequential adjustments.    The parties now agree that married

filing separately is the correct 1992 filing status for

petitioner.

     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




     3
      Respondent proposed that we find these unreported gross
receipt figures, and petitioner indicated that he did not object.
In respondent's reply brief, he states that the total amount of
unreported gross receipts for 1992 is $274,902. We will use the
lower figure to which the parties have agreed.
                                - 5 -


      Petitioner also bought, sold, and traded military

memorabilia.    Petitioner did not report this activity on his

1990, 1991, or 1992 returns.


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.    Sec. 6001.

      Section 162 generally allows a deduction for all the

ordinary and necessary expenses paid or incurred during the



      4
      Respondent concedes: Air phone charges of $89 in 1990,
$247 in 1991, and $1,808 in 1992; office rent of $25,050 in 1990
and $25,000 in 1991; postage and secretarial services of $1,880
in both 1990 and 1991; office expenses of $951.34 in 1990; and
printing expenses of $20,595 in 1990 and $5,424 in 1991. The
total deductions conceded by respondent are $48,565.34 in 1990,
$32,551.00 in 1991, and $1,808.00 in 1992.
                               - 6 -


taxable year in carrying on any trade or business.   Such expenses

must be directly connected with or pertain to the taxpayer's

trade or business.   Sec. 1.162-1(a), Income Tax Regs.   The

determination of whether an expenditure satisfies the

requirements of section 162 is a question of fact.    Commissioner

v. Heininger, 320 U.S. 467, 475 (1943).

     Section 162(a)(2) allows a deduction for all the ordinary

and necessary traveling expenses, including meals, paid by a

taxpayer during the taxable year while traveling away from home

in the pursuit of a trade or business.    A travel or entertainment

deduction is disallowed if the taxpayer does not satisfy the

substantiation requirements of section 274(d)5 through either


     5
     Sec. 274(d) provides:

          (d)Substantiation Required.--No deduction or
     credit shall be allowed--

               (1) under section 162 or 212 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
                                                   (continued...)
                               - 7 -


adequate records or the taxpayer's own detailed statement that is

corroborated by sufficient evidence.     Section 274(d) also applies

to listed property, which includes any passenger automobile.

Secs. 274(d)(4), 280F(d)(4)(A)(i).     At a minimum, the taxpayer

must substantiate:   (1) The amount of the expense, (2) the time

and place such expense was incurred, (3) the business purpose of

the expense, and (4) the business relationship to the taxpayer of

persons entertained.   Sec. 274(d).

     The regulations further clarify the stringent substantiation

requirements of section 274.   A taxpayer generally must

substantiate each expenditure by producing (1) adequate records

or (2) sufficient evidence to corroborate his or her own

statement.   Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50

Fed. Reg. 46016-46017 (Nov. 6, 1985).     The "adequate records"

standard requires that a taxpayer maintain an account book,


     5
      (...continued)
     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 relationship 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)).
                                - 8 -


diary, log, statement of expense, or other similar record in

which entries of expenditures are recorded at or near the time of

the expenditure.    In addition, a taxpayer must supply documentary

evidence, such as receipts or paid bills.    Sec. 1.274-5T(c)(2)(i)

to (iii), Temporary Income Tax Regs., 50 Fed. Reg. 46017-46020

(Nov. 6, 1985).    Alternatively, taxpayers who are unable to

satisfy the adequate records requirement are still entitled to a

deduction for expenses that they can substantiate with other

corroborative evidence.    Sec. 1.274-5T(c)(3), Temporary Income

Tax Regs., 50 Fed. Reg. 46020-46021 (Nov. 6, 1985).

     For expenses other than those covered by the provisions of

section 274(d), if the taxpayer failed to keep adequate records

but the Court is convinced that deductible expenditures were

incurred, the Court "should make as close an approximation as it

can, bearing heavily if it chooses upon the taxpayer whose

inexactitude is of his own making."     Cohan v. Commissioner, 39

F.2d 540, 544 (2d Cir. 1930).    However, we must have some

rational basis on which an estimate may be made.     Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).

     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



     6
     See appendix.
                                 - 9 -


substantial and stringent requirements of section 274(d).    The

other category consists of all the other claimed deductions.

     Regarding the deductions governed by section 274, respondent

has conceded some items of expense, and petitioner has conceded

that the air travel expenses in all the years in issue cannot be

adequately substantiated.    Petitioner has put forward no

believable explanation for the absence of required records;

consequently, the burden of his inexactitude must fall on him.

Petitioner did not produce any witnesses to corroborate when and

where he traveled on business.    Mrs. Shea could testify only to

the fact that petitioner was not home and that petitioner said he

was traveling on business.    While it is likely that some of

petitioner's travel was business related, we have insufficient

information to allow any deductions given the strict standards

set by section 274.   Petitioner's claims for deductions relating

to meals away from home and lodging expenses fail for the same

reasons that the airline travel expenses fail.    The other claimed

deductions subject to section 274(d), including passenger auto

expense and entertainment, are likewise unsubstantiated.

Petitioner did not keep a contemporaneous trip diary to record

business miles traveled in his personal vehicle and did not

maintain a record of the parties entertained or the business

purpose.   We, consequently, uphold respondent's disallowance of
                              - 10 -


these items as not complying with the statutory requirements of

section 274.

     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



     7
      For example, airfares for family members and third parties
not employees of STG, a limousine rental for petitioner's
daughter who was not an employee, items noted as apparel and
accessories, leather goods and accessories, fine art and frames,
and jewelry and gifts.
                                 - 11 -


summaries, we cannot in most instances determine which expenses

relate to the military memorabilia activity,8 are personal

expenses, or are truly business expenses.        Except as noted above,

petitioner has produced insufficient evidence to persuade us that

respondent's disallowance of the deductions reported in Schedules

C of the returns is in error.     Consequently, with the exceptions

noted above, we uphold respondent's disallowance of deductions.

     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




     8
      We are unable to determine the exact magnitude of
petitioner's military memorabilia activity, but it appears to be
quite extensive. During the examination, petitioner or his agent
provided a document in the form of a ledger. The ledger appears
to show six transactions in 1990 for amounts of $46,836, $4,400,
$27,755, $8,084, $64,874, and $20,100 that relate to petitioner's
military memorabilia activity.

     9
     The net profit was calculated as follows:

                          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...)
                                - 12 -



B.   Application of Community Property Law in 1992


      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


      9
      (...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
                             - 13 -


on only one-half of that community income for Federal tax

purposes.

     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 section

66(b) to deny petitioner the income-splitting benefits of

California's community property law.   Section 66(b) provides:


     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 section 66(b) authorizes the

Commissioner to disallow the benefits of any community property

law to a taxpayer with respect to any income if (1) the taxpayer

acted as if he were solely entitled to such income, and (2) the

taxpayer failed to notify the taxpayer's spouse of the nature and
                              - 14 -


amount of such income before the due date for filing the return.

See Mischel v. Commissioner, T.C. Memo. 1997-350; Schramm v.

Commissioner, T.C. Memo. 1991-523, affd. without published

opinion 988 F.2d 121 (9th Cir. 1993).   However, petitioner

contends that respondent made no determination in the notice of

deficiency to disallow the benefits of community property law

pursuant to section 66(b), that respondent's reliance on section

66(b) is a "new matter" within the meaning of Rule 142(a),10 and

that respondent must bear the burden of proving that section

66(b) applies.11

     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



     10
      Rule 142 provides:

          (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.
     11
       Petitioner does not contend that respondent should be
precluded from relying on sec. 66(b). Petitioner was on notice
before trial that respondent would rely on sec. 66(b). The sec.
66(b) issue was tried by consent of the parties and is properly
before the Court. See Rule 41(b). Petitioner's only requested
relief is that respondent bear the burden of proof regarding this
issue.
                              - 15 -


Court setting forth criteria for determining when the

Commissioner is raising a "new matter".   A synopsis of these

criteria is as follows:


          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 respect 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.




     12
      See also Colonnade Condominium, Inc. v. Commissioner, 91
T.C. 793, 795 n.3 (1988); Achiro v. Commissioner, 77 T.C. 881,
890-891 (1981); Estate of Jayne v. Commissioner, 61 T.C. 744,
748-749 (1974); McSpadden v. Commissioner, 50 T.C. 478, 492-493
(1968).
                                 - 16 -


     Respondent now acknowledges that petitioner is entitled to

the benefits of community property law, unless those benefits can

be disallowed pursuant to section 66(b).     Respondent argues that

invocation of section 66(b) is necessarily implicit in the notice

of deficiency.    We disagree.   The notice of deficiency makes

absolutely no mention of community property law, section 66(b),

or facts which would allow respondent to invoke section 66(b).

In the notice of deficiency, respondent determined that all of

Mrs. Shea's 1992 wage income was her separate income without

regard to community property law.     Respondent also treated

interest on petitioner's and Mrs. Shea's joint bank account as

the separate income of petitioner without regard to community

property law.    And, as previously mentioned, the notice of

deficiency contains no adjustment for the $119,204 that was

transferred from the business account to petitioner's and Mrs.

Shea's household checking account during 1992.13

     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.14    In short, it


     13
      As previously noted, respondent now acknowledges that
petitioner is entitled to the benefits of community property law
with respect to $119,204 of the 1992 STG net profit, regardless
of whether sec. 66(b) is otherwise applicable.
     14
      Attached to petitioner's Motion to Shift Burden of Proof
is what purports to be a copy of the revenue agent's report for
                                                   (continued...)
                               - 17 -


appears to us that respondent gave no thought to community

property law or section 66(b) when the notice of deficiency was

prepared.15   Respondent's apparent failure to even consider

community property law, or section 66(b) in making his deficiency

determination supports our conclusion that section 66(b) was not

implicit in the notice of deficiency.   However, even if

respondent's agents had considered such matters, it does not

follow that they were "necessarily implicit" in the notice of

deficiency.   The objective language in the notice of deficiency

remains the controlling factor.   As indicated in the preceding

paragraph, there is nothing in the notice of deficiency that

makes section 66(b) "necessarily implicit".

     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 section 66(b)

applies.   The facts necessary for a determination of income


     14
      (...continued)
petitioner's 1992 taxable year. Petitioner alleged, and the
attached revenue agent's report shows, that the revenue agent
computed the 1992 deficiency based on joint filing status as
opposed to the married filing separate status used in the notice
of deficiency. We also note that the notice of deficiency for
1992 was addressed to "John D. and Flora [sic] M. Shea," even
though the attached schedules reflect tax liability for only John
D. Shea.
     15
      At trial, respondent's counsel could not clarify this
point other than to state: "I think it was done pursuant to
66(b), although 66(b) I concede is not mentioned in the stat
notice."
                              - 18 -


pursuant to a bank deposits analysis would require evidence of

deposits and an identification of which deposits should be

excluded from income.   Business deductions are allowed or

disallowed based on whether they can be substantiated.

     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
     liable 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 section

66(b) and disregard community property law in determining

petitioner's income requires evidence of whether petitioner acted
                               - 19 -


as if he were solely entitled to the income and whether he failed

to notify his wife of the nature and amount of that income.    See

Mischel v. Commissioner, T.C. Memo. 1997-350.   Based on our

previously articulated test for determining whether respondent's

reliance on section 66(b) is new matter, we would hold that it is

and that the burden of proof as to that issue should be on

respondent.

     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


     16
      The Court of Appeals for the Ninth Circuit is the court to
which this case is appealable.
                                - 20 -


and the amount of them but contained no explanation".     Id. at

1389.     The Court of Appeals for the Ninth Circuit then stated:


     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, 90 S.Ct. 94, 24
     L.Ed.2d 86 (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.,


     17
        In Achiro v. Commissioner, 77 T.C. at 891, we stated:

     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
                                                   (continued...)
                              - 21 -


U.S.A. v. Commissioner, T.C. Memo. 1992-110; National

Semiconductor Corp. & Consol. Subs. v. Commissioner, T.C. Memo.

1991-81; Perryman v. Commissioner, T.C. Memo. 1988-378, affd.

without published opinion 920 F.2d 936 (9th Cir. 1990).18

     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.


     17
      (...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); Rule 142(a), Tax Court Rules
     of Practice and Procedure. But see Abatti v.
     Commissioner, 644 F.2d 1385 (9th Cir. 1981), revg. a
     Memorandum Opinion of this Court.
     18
      In Perryman v. Commissioner, supra, appellate venue was in
the Ninth Circuit Court of Appeals which had decided Abatti v.
Commissioner, 644 F.2d 1385 (9th Cir. 1981), revg. T.C. Memo.
1978-392. In Perryman, we held:

     Despite our holding in Achiro, however, 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.
     19
      Sec. 7522 is applicable to notices of deficiency issued
after Jan. 1, 1990.
                             - 22 -


          (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
     section shall apply to--

               (1) any tax due notice or deficiency notice
          described in section 6155, 6212, or 6303,

               (2) any notice generated out of any
          information return matching program, and

               (3) 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
                               - 23 -


of deficiency.   As we have previously indicated, we do not

believe that section 66(b) was implicit or even considered in

making the adjustments contained in the notice of deficiency.     It

is a closer call to say whether reliance on section 66(b) is

"inconsistent" with the language in the notice of deficiency.     In

the final analysis, we think that section 7522 makes the question

of whether reliance on section 66(b) is, or is not,

"inconsistent" with the notice of deficiency irrelevant, if the

basis on which respondent relies was not described in the notice

of deficiency and requires different evidence.

     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


     20
      Sec. 7522 does not articulate specific standards for
determining whether the description of the Commissioner's basis
is adequate, nor does it provide any statutory remedy or
sanction. The only reference in sec. 7522(a) to a failure to
abide by its provisions provides: "An inadequate description
under the preceding sentence shall not invalidate such notice."
We view this provision as referring only to the "validity" of the
notice of deficiency for jurisdictional purposes. As the Court
of Appeals for the Ninth Circuit has stated:


     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
                                                   (continued...)
                               - 24 -


that is "not inconsistent" with the language in the notice of

deficiency.   Indeed, were such an exception available, the

Commissioner would be free to raise new theories that would

require different evidence so long as the new theories were not

inconsistent with the language in the notice of deficiency.      Such

a result would significantly dilute the legislative mandate of

section 7522.

     Generally, the Commissioner's determination in a notice of

deficiency is presumed 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.




     20
      (...continued)
     (1980). [Scar v. Commissioner, 814 F.2d 1363, 1366
     (9th Cir. 1987), revg. on other grounds 81 T.C. 855
     (1983); emphasis added.]
                             - 25 -


          (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

deficiency, 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


     21
      On brief, respondent declined to address what the
consequences, if any, would be if we were to find that respondent
was attempting to rely on a basis that he failed to describe in
the notice of deficiency as required by sec. 7522. However, in
Straight v. Commissioner, T.C. Memo. 1997-569, respondent
conceded that placing the burden of proof on respondent may be
proper where the notice of deficiency violates sec. 7522.
                               - 26 -


benefits of community property law to petitioner, and different

evidence will be necessary to resolve the section 66(b) issue.

Under these circumstances, treating the section 66(b) issue as a

new matter upon which respondent has the burden of proof is both

consistent with our prior practice and supported by the statutory

requirements of section 7522.22    We, therefore, hold that where

a notice of deficiency fails to describe the basis on which the

Commissioner relies to support a deficiency determination and

that basis requires the presentation of evidence that is

different than that which would be necessary to resolve the

determinations that were described in the notice of deficiency,

the Commissioner will bear the burden of proof regarding the new

basis.    To hold otherwise would ignore the mandate of section

7522 and Rule 142(a).    Respondent must therefore bear the burden

of proof regarding application of section 66(b).

     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


     22
      Placement of the burden of proof affects only the
obligation to prove facts. If a new theory or basis is
completely dependent upon the same evidence required by the basis
described in the notice of deficiency, there would normally be
little practical reason to shift the burden of proof. The
taxpayer would not suffer from lack of notice concerning what
facts must be established. Indeed, in that situation, the new
theory would be a purely legal as opposed to a factual issue.
The burden of proof does not affect the Court's determination of
what the law is.
                              - 27 -


separately deposited into an account styled in the business name;

(b) not all the net business income was deposited into the joint

household account; (c) Mrs. Shea did not have signing authority,

access, or knowledge of the specific transactions in the business

account; and (d) Mrs. Shea did not involve herself in the

business and did not know the extent of the gross income or the

extent of the unreported income of the business.

     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 her.
                               - 28 -


     Respondent now concedes that some of the business profits

were used to support the Shea family and that in excess of

$119,000 was deposited into the "household account".    Respondent

disallowed deductions for some expenditures from the business

account because he determined that these expenditures were

personal expenses of the Shea family not properly deductible as

business expenses.    But this position supports petitioner's

argument that profits were used to pay community debts.

Respondent points out in arguing for disallowance of claimed

business deductions that Mrs. Shea directly benefited from some

of these expenditures.    Indeed, our findings which sustain

respondent's disallowance of claimed business deductions were in

part based on respondent's analysis indicating that some of the

expenditures from that business account, which were claimed as

business deductions, were apparently spent for personal expenses

of the Shea family.    Examples of such expenditures from the

business account in 1992 include the purchase of airline tickets

for Mrs. Shea, B. Alvarez, Margreite Alvarez, and Trudy Daly.23

Also, in disallowing petitioner's claimed business deductions for

1992, we noted the possibility that some of them might have been



     23
      The Shea family took a vacation cruise on the Regal
Princess from Dec. 29, 1991, to Jan. 4, 1992. On Dec. 28, 1991,
petitioner stayed in Fort Lauderdale, Florida. Mrs. Shea's
airline ticket from San Jose to Fort Lauderdale purchased on Dec.
27, 1991, was deducted as a business expense.
                              - 29 -


business expenditures for which petitioner failed to provide

adequate substantiation.   But the fact that petitioner failed to

meet his burden of proof regarding the deductibility of these

expenses is not sufficient to justify a finding that respondent

has met his burden of proving that petitioner treated the income

deposited in the business bank account as if he were solely

entitled to it.

     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.
                                 - 30 -



                                Appendix
                   Expense Items Claimed on Schedule C


                                            1990         1991         1992

 Expenses subject to sec. 274(d):

 Car and truck expenses                    $2,615       $2,870           --
                                                                  1
 Air travel                                29,760       59,785     $104,340
                                                                    2
 Meals away from home                       5,743        2,890        12,481
 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
                                                    4
   Total                                  162,278       189,912       211,709


     1
       For the taxable year 1992, air travel also includes lodging.
     2
       For the taxable year 1992, meals away from home combined meals
and entertainment.
     3
       Some 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.
     4
        For the taxable year 1991, petitioner inexplicably reported
total expenses of $192,516 on line 28 of Schedule C.
                               - 31 -


     HALPERN, J., concurring in result:    I agree with the result

reached by the majority.   However, I write separately because I

disagree with the following steps taken by the majority in

reaching that result:   one, incorporating a requirement of

section 7522 into the definition of the term "new matter" and,

two, suggesting that respondent's intent in drafting the notice

of deficiency is relevant to the determination of whether a new

theory is new matter with respect to such notice.

The Term “New Matter”

     Rule 142(a) provides:

          (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. * * *


     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 Rule 142(a).

In Achiro v. Commissioner, 77 T.C. 881, 890 (1981), we stated:

          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
                              - 32 -


     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 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
                               - 33 -


and that the burden of proof as to that issue should be on

respondent."   Majority op. p. 19.   The majority's hesitation to

make such a holding is based on the opinion of the Court of

Appeals for the Ninth Circuit (Ninth Circuit) in Abatti v.

Commissioner, 644 F.2d 1385 (9th Cir. 1981), revg. T.C. Memo.

1978-392.   Respondent argues, and the majority appears to

believe, that Abatti holds that, if a new theory is not

inconsistent with the determination in the notice, then it is not

new matter.    See majority op. pp. 19-20.   Respondent’s argument

ignores the disjunctive nature of our traditional interpretation:

a new theory is new matter under either the inconsistency

alternative or the different evidence alternative.     Nevertheless,

if Abatti means that the Ninth Circuit’s interpretation of the

term “new matter” is inconsistent with our interpretation, then

the doctrine established by Golsen v. Commissioner, 54 T.C. 742

(1970), affd. 445 F.2d 985 (10th Cir. 1971), comes into play.

The Golsen doctrine is that, notwithstanding that we are a

national court and have the authority to render a decision

inconsistent with any Court of Appeals, where a reversal would

appear inevitable due to the clearly established position of the

Court of Appeals to which an appeal would lie, we shall not

insist on our view, but shall follow the Court of Appeals

decision on point.    Id. at 757; accord Lardas v. Commissioner, 99

T.C. 490, 494-495 (1992).
                                - 34 -


Jurisprudence of the Ninth Circuit

     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 Rule

142(a).   The Ninth Circuit relied on our opinion in Sorin v.

Commissioner, 29 T.C. 959 (1958), affd. per curiam 271 F.2d 741

(2d Cir. 1959), for an interpretation of the term "new matter".

Abatti v. Commissioner, supra at 1390.    In Sorin, we stated that,

when a:

     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 inconsistent 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
                              - 35 -


raise, nor did the Ninth Circuit address, the different evidence

alternative.

     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 Rule 142(a)’s use of the term “new

matter”.   The Ninth Circuit concluded:   "It is well settled that

the assertion of a new theory that merely clarifies the original

determination, without requiring the presentation of different

evidence, does not shift the burden of proof."     Id. at 990

(citing Achiro v. Commissioner, 77 T.C. at 890).    Again, the

Ninth Circuit stated an interpretation of the term “new matter”

that, if considered in isolation, could be misunderstood to

exclude alternative interpretations and would imply that, in

every instance, a new theory that does not require different

evidence is not new matter.   I do not believe we must infer that,

in going from Abatti to Stewart, the Ninth Circuit replaced one

singular interpretation of the term “new matter”, i.e.,

inconsistency, with another, i.e., different evidence.    Clearly

the Ninth Circuit has adopted both alternatives of our

disjunctive test.   Although the Ninth Circuit has stated each

alternative in exclusive terms at different times, I think that

those statements can be harmonized.    If, however, either test

preempts the other in the Ninth Circuit, we must conclude that
                                - 36 -


the different evidence alternative preempts the inconsistency

alternative because Stewart postdates Abatti.

      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 Rule 142(a).    Majority op. p.

19.   The Golsen doctrine is no bar to that conclusion.   For the

reasons stated, I do not believe that respondent’s argument, to

wit, if a new theory is not inconsistent with the determination

in the notice, then it is not new matter, would necessarily

succeed in the Ninth Circuit.    Therefore, I conclude that, under

Golsen, we need not alter our disposition of the instant case on

account of the jurisprudence of the Ninth Circuit.

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.
                               - 37 -


Indeed, the majority's holding appears to require our

consideration of a section 7522 requirement in determining what

is new matter.    I have difficulty understanding why the majority

concludes that section 7522 affects the allocation of the burden

of proof.    Section 7522 makes no mention of the burden of proof.

The majority has not persuaded me that, on account of a violation

of section 7522, Congress intended a particular remedy (i.e.,

allocating the burden of proof to the Commissioner as opposed to,

for instance, extending a period of limitations, if it operates

against the taxpayer, or awarding attorney's fees).1    Further,

assume the Commissioner issues a valid but inadequately

descriptive notice, in violation of section 7522.    If the

Commissioner introduces no new theory, would the majority remedy

the Commissioner's violation of section 7522 by placing the

burden of proof upon him?2


     1
          The only remedy that we can assuredly conclude is not
within the purview of sec. 7522 is an invalidation of such
inadequate notice. See sec. 7522.
     2
            In that vein, consider Judge Beghe's concern:

     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.

                                                     (continued...)
                              - 38 -


     The majority, however, has convinced itself that a

reasonable method for enforcing the requirement of section 7522

is to allocate the burden of proof to the Commissioner with

regard to any new theory that both (1) was not stated or

described in the notice of deficiency and (2) requires the

presentation of different evidence.    Majority op. pp. 23, 25.   I

do not understand the cumulative aspect of such a test.    Clearly,

any new theory that requires the presentation of different

evidence, thus satisfying the second prong, could not have been

stated or described in the notice and, thus, will always satisfy

the first prong.   Adding the first prong, however, is a

rhetorical device that serves only to import the section 7522

requirement into the new matter inquiry.    The majority merely

couples one of our traditional disjunctive alternatives, which

has been explicitly adopted by the Ninth Circuit, to a

restatement of the section 7522 requirement, to opine on what is




     2
      (...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.
                               - 39 -


a proper means of enforcement for section 7522.     Such holding is

both unnecessary and inappropriate on the facts before us.

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
                                - 40 -


should make it clear that there is no connection between the

Commissioner’s intent and whether a new theory is implicit in a

notice of deficiency.

     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 benefits 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 Rule 41(a).   The Commissioner’s

awareness may be a factor in determining whether, under Rule

41(a), the Court should give leave to amend the answer to

incorporate the new theory.    Assuming leave to amend is given,

the question of whether the new theory constitutes new matter

under Rule 142(a) involves different considerations, viz, whether

the new theory is inconsistent with the notice or requires

different evidence.     Simply stated, it would violate principles
                               - 41 -


of horizontal equity to place the burden of proof on the taxpayer

in the first case and on the Commissioner in the second case,

when both taxpayers have identical tax attributes and received

identical notices.

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 proof on respondent

pursuant to the first sentence of Rule 142(a), which provides:

"The burden of proof shall be upon the petitioner, except as

otherwise * * * determined by the Court".3   Placing the burden on

respondent because section 7522 makes something "new matter",

which otherwise is not, obfuscates not only our interpretation of

the Ninth Circuit's jurisprudence, but our own jurisprudence as

well.    For the foregoing reasons, I respectfully concur in

result.

     CHABOT, WHALEN, and CHIECHI, JJ., agree with this concurring

in result opinion.




     3
          That portion of the rule would support the result that
Judge Beghe would accomplish, and satisfy his pragmatic concern,
without doing violence to the term "new matter".
                                - 42 -


     BEGHE, J., concurring:     More than 4 years ago Judge Raum

made the suggestion that bears fruit today, that section 7522(a)

provides a justification for shifting the burden of proof to

respondent as a sanction for vague notices of deficiency.    See

Ludwig v. Commissioner, T.C. Memo. 1994-518.

     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.
                              - 43 -


     Our jurisprudence and that of the Ninth Circuit is

sufficiently murky on this issue to justify using section 7522(a)

to clarify the situation and set ourselves and our litigants on

the right path for the future.

     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 theoretical 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
                              - 44 -


appropriate, proportionate, and specifically directed response to

the vagueness and inadequacy of the notice in failing to set

forth any matter other than to express the intent to assess a

specified amount of a particular tax.

     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).
