IRC § 1(f) (applicable to the years at issues) states the following:
(1) In general — Not later than December 15 of 1993, and each subsequent calendar year, the Secretary shall prescribe tables which shall apply in lieu of the tables contained in subsections (a), (b), (c), (d), and (e) with respect to taxable years beginning in the succeeding calendar year.
(2) Method of prescribing tables: The table which under paragraph (1) is to apply in lieu of the table contained in subsection (a), (b), (c), (d), or (e), as the case may be, with respect to taxable years beginning in any calendar year shall be prescribed–
(A) by increasing the minimum and maximum dollar amounts for each rate bracket for which a tax is imposed under such table by the cost of living adjustment for such calendar year,
(B) by not changing the rate applicable to any rate bracket as adjusted under subparagraph (A), and
(C) by adjusting the amounts setting forth the tax to the extent necessary to reflect the adjustments in the rate brackets.
(3) Cost of living adjustment: For purposes of paragraph (2), the cost of living adjustment for any calendar year is the percentage (if any) by which
(A) the CPI for the preceding calendar year, exceeds (B) the CPI for the calendar year 1992.
(4) CPI for any calendar year: For purposes of paragraph (3), the CPI for any calendar year is the average of the Consumer Price Index as of the close of the 12 month period ending on August 31 of such calendar year.
(5) Consumer Price Index: For purposes of paragraph (4), the term “Consumer Price Index” means the last Consumer Price Index for all urban consumers published by the Department of Labor. For purposes of the preceding sentence, the revision of the Consumer Price Index which is most consistent with the Consumer Price Index for calendar year 1986 shall be used.
(Note: Should Respondent contend that these tables are ‘prescribed’ via revenue procedures, the Court should note that such procedures are simply not law, and have no weight or binding effect on the Court. Lee Engineering Supply v CIR, 101 TC 189 (1993) (note 3) (rev. proc. is not law, just commissioner’s opinion); Phillips Petroleum Co., v CIR, 101 TC 78 (1993) [note 17] (same as commissioner’s opinion); Phillips Petroleum Co., v CIR, 101 TC 78 (1993) [note 17] (same as above; rev. proc. not entitled to any deference in the court); Compaq Computer Corp. v CIR, 113 TC 363, 372 (1999) (well established that rev. proc. is not law binding on the court, but merely a statement of the commissioner’s position; citing Xerox, Helvering, and Casanova Co. v Commissioner, 87 TC 214, 223 (1986))).
Therefore, a question exists as to whether any such tables have actually been ‘prescribed’, and if so, whether the formula was followed in §1(f) for making the tables. Petitioner contends these are factual issues subject to trial, and for which Respondent has the burden of proof. Otherwise, without any showing of a source in law or regulation for Respondent’s tax numbers, those numbers are baseless and arbitrary.
In Helvering v. Taylor, 293 US 507, 515 (1935) the supreme court held that when the government’s deficiency determination is shown to be “arbitrary”, no taxpayer would have any burden of showing the correct amount of tax, if any. Moreover, a court facing these circumstances should hold “the Commissioner’s determination invalid”. Id. When an assessment has no foundation whatsoever, it is considered to be “naked,” is one “without rational foundation and excessive”, and is not properly subject to the usual rule of the presumption of correctness and the burden of proof in tax cases. United States v. Janis, 428 US 433, 441 (1976), citing Helvering v. Taylor, 293 US 507, 514-15 (1935). Also see Cohen v. C.I.R.. 266 F.2d 5, 11-12 (9th Cir. 1959) (Commissioner determination is invalid when it is arbitrary or erroneous); Clinton Cotton Mills v. C.I.R., 78 F.2d 292, 295 (4th Cir. 1935) (where determination by Commissioner is grounded upon error of law, presumption of correctness no longer avails). Since Respondent’s tax numbers do not come from any statute or regulation, it would have the burden of proof in showing just where its numbers came from, and if/how they comply with §1(f). However, Respondent has made no pre-trial disclosures whatever on this issue, and has identified no witnesses or exhibits for it.