A presumption of correctness attaches to the Commissioner's assessment, once some substantive evidence is introduced demonstrating that the taxpayer received unreported income. See Doyal v. Commissioner of Internal Revenue, 616 F.2d 1191, 1192 (10th Cir. 1980); Weimerskirch v. Commissioner, 596 F.2d 358, 360 (9th Cir. 1979); and Wallis v. C.I.R., 357 F.2d 313, 314 (10th Cir. 1966). This presumption will permit judgment in the Commissioner's favor unless the opposing party produces substantial evidence overcoming it. Long v. Commissioner, 757 F.2d 957, 959 (8th Cir. 1985); Edwards v. Commissioner, 680 F.2d 1268, 1270-71 (9th Cir. 1982).
Ronald next claims the IRS calculation of assessments was arbitrary and erroneous. Once the IRS shows an evidentiary foundation for the assessment, as it has done here, the taxpayer may overcome the presumption of correctness that attaches to it by citing proof that the assessment is arbitrary and erroneous. See United States v. Gosnell, 961 F.2d 1518, 1520 (10th Cir. 1992); Jones v. C.I.R., 903 F.2d 1301, 1304 (10th Cir. 1990) (citing United States v. Janis, 428 U.S. 433, 442 (1976)); Doyal v. Comm'r, 616 F.2d 1191, 1192 (10th Cir. 1980) (the only exception to the general rule concerning the burden of proof is when the taxpayer shows the IRS's deficiency determination is arbitrary and excessive). Among other things, Ronald claims the IRS arbitrarily assessed self-employment taxes on royalty income, failed to deduct the cost basis of property in determining capital gain, improperly imposed penalties for failing to pay estimated taxes, improperly failed to apply a carry-forward loss from a prior return, and improperly assessed short-term instead of long-term capital gain rates.
Defendant on the other hand asserts that the absence of allocation within the settlement agreement of payment among the various claims that were asserted or among the elements of damages awarded by the trial court renders the entire amount paid includable as income, citing Taggi v. United States, 835 F. Supp. 744, 746 (S.D.N.Y. 1993), aff'd, 35 F.3d 93 (2nd Cir. 1994); Villaume v. United States, 616 F. Supp. 185, 190 (D.Minn. 1985); and Whitehead v. Commissioner of Internal Revenue, 41 T.C.M. (CCH) 365, 369, 1980 WL 4334 (1980). In the alternative Defendant asserts that Plaintiff has the burden of proving how the parties to the actual settlement allocated the payment among claims, citing INDOPCO, Inc. v. Commissioner of Internal Revenue, 503 U.S. 79, 84, 112 S.Ct. 1039, 1043, 117 L.Ed.2d 226, 233 (1992); United States v. McMullin, 948 F.2d 1188, 1192 (10th Cir. 1991); and Doyal v. Commissioner of Internal Revenue, 616 F.2d 1191, 1192 (10th Cir. 1980). Plaintiff in the alternative and in opposition to Defendant's motion states as follows:
3. The assessment of a tax made by the United States is presumed to be correct, and a taxpayer bears the burden of demonstrating otherwise. Doyal v. Commissioner of Internal Revenue, 616 F.2d 1191 (10th Cir. 1980). 4. Dr. and Mrs. Allen have raised no material issues of fact to dispute the assessment of tax liability against them for the tax years 1973 and 1974.