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Shifting the Burden of Proof

Shifting the Burden of Proof in Tax Court

The "shifting of burden of proof" refers to transferring the legal responsibility to prove a factual issue from the taxpayer (petitioner) to the IRS under specific conditions. Here’s a breakdown:

1. General Rule

  • Burden on the Taxpayer: Normally, the taxpayer must prove their case (e.g., disproving IRS adjustments).

2. When Does the Burden Shift to the IRS?

The burden shifts only for factual issues if the taxpayer:

  1. Complies with Substantiation Requirements: Follows IRS rules for documenting claims (e.g., receipts for deductions).

  2. Maintains Required Records: Keeps all tax-related records as mandated by the tax code.

  3. Cooperates with IRS Requests: Responds to IRS inquiries and provides requested information.

  4. Net Worth ≤ $7M (for Entities): If the taxpayer is a corporation, partnership, or trust, its net worth must not exceed $7 million.

AND

  • The taxpayer introduces credible evidence (reliable and relevant proof) supporting their position on a factual issue.

Result:

  • The IRS must then disprove the taxpayer’s evidence or prove its own position on that specific factual issue.

3. Key Notes

  • Factual vs. Legal Issues: Burden shifting applies only to factual disputes (e.g., whether income was underreported). Legal interpretations (e.g., tax code meaning) remain the taxpayer’s burden.

  • Credible Evidence Threshold: Evidence must be sufficient to shift the burden but does not need to be conclusive.

4. Role of the Appeals Office

  • Exclusive Settlement Jurisdiction: After a Tax Court petition is filed, the IRS Appeals Office has 4 months to settle the case before trial.

  • Geographic Jurisdiction:

    • Handles cases designated for trial within their region.

    • Manages cases originating in their district, unless the petitioner’s records are in/near Washington, D.C., and the case is designated for trial there.

Example

If the IRS claims a taxpayer underreported income, and the taxpayer:

  • Provides bank statements (credible evidence) showing full income reporting,

  • Complied with record-keeping rules,

  • Cooperated with audits,

  • (If an entity) Has a net worth ≤ $7M,

Then: The IRS must prove the underreporting claim, not the taxpayer.

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