Choice of Forum and Burden of Proof

Question 1

What factors for choosing between Tax Court, U.S. District Court, and Court of Claims for review of IRS’s determination of a deficiency?

Answer 1

• Is the taxpayer able to pay the assessment?
• Is there time to file a Tax Court petition?
• Is the case better suited to court with special tax expertise?
• Other factors?

Question 2

What 3 concepts apply in all judicial review scenarios?

Answer 2

1. Greenberg’s Express Rule
2. Presumption of Correctness
3. Burdens of Proof

Question 3

What is the Greenberg Express Rule about under Greenberg’s Express Inc. v. Comm’r?

Answer 3

• Organized crime = being singled out because of who they were so they want tax court to do something because they were selectively audited and IRS violated their administrative practices
• Taxpayers complained that IRS failed to follow audit procedure, and that that IRS’ actions were arbitrary, unreasonable, and capricious
• Court will not “look behind” notice of deficiency
• Court’s review is DE NOVO - determination of petitioner’s tax liability based on merits of the case and not administrative record (limited expectation if substantial evidence of unconstitutional conduct by the IRS)
• Unless taxpayer has strong unconstitutional claim, complaining is just noise
• The IRS’s jurisdiction is only on whether the deficiency was correct

Question 4

What is the presumption of correctness rule?

Answer 4

The general rule is that the Commissioner’s deficiency determination is presumed to be correct, and that the petitioner has the burden of proving it to be wrong. - Welch v. Helvering

Question 5

What is the burden of proof for unreported income cases which is an exception to the presumption of correctness rule?

What does the IRS then need to show?

Answer 5

In unreported income cases, courts have held that the presumption of correctness WILL NOT ARISE when a taxpayer shows that the IRS’s determination of deficiency is “ARBITRARY and EXCESSIVE,” i.e. without factual foundation or lacking in rational basis.

If the taxpayer produces evidence of arbitrariness, the IRS must DEMONSTRATE THE LINK TO INCOME PRODUCING ACTIVITY to ensure that the IRS is entitled to the benefit of the presumption of correctness.

Question 6

What is the saying “It’s really hard to prove a negative” about?

Answer 6

Even though deficiency is presumed correct, if IRS is saying there’s unreported income, the presumption of correctness of the IRS is not going to arise if there’s no functional foundation for unreported income.

Question 7

What are the 3 other exceptions to when IRS (not taxpayer) has the burden of proof?

Answer 7

1. New Matters: If the Commissioner raises a new matter, increase in deficiency, or affirmative defense in the Answer, the burden of proof on that issue is on the Commissioner.
2. Penalties – I.R.C. 7491(c (“Notwithstanding any other provision of this title, the Secretary shall have the burden of production in any court proceeding with respect to the liability of any individual for any penalty, addition to tax, or additional amount imposed by this title”)
3. The IRC 7491 Burden Shifting Rule.

Question 8

What is the I.R.C. 7491 burden shifting rule?

It only applies when what 2 things happen?

Answer 8

1. Burden of proof shifts where taxpayer produces CREDIBLE evidence.
2. Applies only if:
   (A) Taxpayer complied with the requirements to substantiate any item;

(B) Taxpayer maintained all records required under this title and has COOPERATED with reasonable requests by the IRS for witnesses, information, documents, meetings, and interviews.

*This says if taxpayer produces credible evidence and complied with all requests for records = then burden of proof will shift to IRS on that issue