## Facts

- Pano and Janice Anastasato challenged federal income tax deficiencies and additions to tax for 1974–1976 arising from alleged unreported “override” airline commissions.
- Pano Anastasato owned and operated two travel-related corporations: Panmarc, Inc. (a travel agency) and Wholesale Tours International (a tour business).
- Panmarc, an IATA-accredited agency, did substantial business with KLM Royal Dutch Airlines; airlines commonly paid confidential “override” commissions above standard commission limits.
- The IRS asserted that KLM paid override commissions by depositing funds into a Swiss bank account identified by the code name “GIGE,” and attributed those deposits to Anastasato as taxable income.
- Anastasato denied receiving override commissions and denied that the Swiss account funds were his income or under his control.
- The Tax Court sustained the deficiency determinations and certain additions to tax but rejected civil fraud penalties, concluding fraud was not proved by clear and convincing evidence.
- In sustaining the deficiencies, the Tax Court treated the IRS determinations as presumptively correct and deemed the taxpayer’s denials and related evidence irrelevant in light of that presumption.

## Issues

1. When does the presumption of correctness attach to the Commissioner’s deficiency determination, and when is the determination an unsupported “naked assessment” lacking that presumption?
2. What evidence must a taxpayer produce to rebut the presumption of correctness and shift the burden of going forward back to the Commissioner?
3. Whether the Tax Court erred by treating the presumption as effectively irrebuttable and discounting the taxpayer’s contrary evidence as irrelevant.

## Decision

- The Third Circuit reversed the Tax Court and remanded.
- The court held that the Tax Court misapplied the presumption of correctness by using it to disregard taxpayer evidence rather than to allocate production burdens.
- The court ruled that the presumption does not attach unless the Commissioner provides a minimal evidentiary foundation linking the taxpayer to the alleged income.
- The court ruled that once such a foundation exists, credible, relevant taxpayer evidence can rebut the presumption and shift the burden of going forward to the Commissioner.
- The court did not decide whether the taxpayer actually received the override commissions; it required further proceedings with proper burden allocation and evidentiary weighing.

## Legal Principles

- A notice of deficiency is ordinarily presumed correct, but the presumption does not arise if the determination is arbitrary, excessive, or a “naked assessment.”
- Before the presumption attaches in unreported-income cases, the Commissioner must produce some evidence establishing a minimal nexus between the taxpayer and the income-producing activity or funds at issue.
- After the presumption attaches, the taxpayer may rebut it by presenting credible, relevant evidence sufficient to show the determination is erroneous; upon rebuttal, the presumption drops from the case.
- The presumption of correctness is procedural, not a rule that renders taxpayer testimony or contrary proof irrelevant; the factfinder must weigh all evidence once the presumption is rebutted.

## Conclusion

The Third Circuit required a threshold evidentiary link between the taxpayer and alleged unreported income before the IRS may rely on the presumption of correctness, and held that credible taxpayer rebuttal evidence must be considered and can shift the burden of going forward back to the Commissioner on remand.


Anastasato v. Commissioner, 794 F.2d 884 (3d Cir. 1986)