BURDEN OF PROOF. Shift Happens

Transcription

1 BURDEN OF PROOF Shift Happens

2 Overview of Presentation 1. Information Returns 2. Issue Specific 3. Statutory General

3 Production v. Persuasion Burden of going forward Reasonable person can find in favor Burden shifts Burden of establishing merits Establish fact as more likely than not true Burden may shift

4 Portillo and Information Returns Portillo v. Comm'r, 932 F.2d 1128 (5th Cir. 1991). Facts: Painting contractor issued F to Mr. P. Contractor said he paid Mr. P $35k. Checks supported $14k. Remainder paid in cash. Mr. P denied receiving cash and challenged the accuracy of the F IRS prevailed in Tax Court 5th Circuit reversed Result- Mr. P won, and only had to pay tax on the $14k supported by checks

5 Portillo (cont.) If Notice of Deficiency is based solely on 1099, the Notice needs support beyond 1099, such as net worth, bank deposits, cash expenditures, source & app, etc. Presumption of correctness did not apply to the Notice Shifted burden to IRS

6 Information Returns - IRC 6201(d) potential to shift the burden 3 rd Party Information Returns Reasonable dispute Full cooperation Access to witnesses, information, and documents Within reasonable time See Tanner v. Commissioner, 2003 U.S. App. LEXIS 7926; U.S. Tax Cas. (CCH) P50,385 (5th Cir. 2003) no facts were disputed

7 Miscellaneous BoP Rules Tax Court Rule 142 New Matters Fraud Transferee Liability Accumulated Earnings Tax

8 New Matter Burden of proof- Commissioner Standards for new matter Inconsistent with SND or Not addressed in SND and requires different evidence

9 Fraud TC Rule 142(b) Burden of proof Commissioner Standard Clear and Convincing Evidence

10 Transferee Liability TC Rule 142(d) & IRC 6902(a) Burden of proof on Commissioner

11 Accumulated Earnings Tax TC Rule 142(e) & IRC 534 Burden on Commissioner if 534(a)(1) no pre-snd notice or 534(a)(2) TP not make a statement

12 I.R.C (a) Burden shifts where taxpayer produces credible evidence. (1) General rule. If, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed by subtitle A or B [26 USCS 1 et seq. or 2001 et seq.], the Secretary shall have the burden of proof with respect to such issue. (2) Limitations. Paragraph (1) shall apply with respect to an issue only if- - (A) the taxpayer has complied with the requirements under this title to substantiate any item; (B) the taxpayer has maintained all records required under this title and has cooperated with reasonable requests by the Secretary for witnesses, information, documents, meetings, and interviews; and (C) in the case of a partnership, corporation, or trust, the taxpayer is described in section 7430(c)(4)(A)(ii) [26 USCS 7430(c)(4)(A)(ii)]. Subparagraph (C) shall not apply to any qualified revocable trust (as defined in section 645(b)(1) [26 USCS 645(b)(1)]) with respect to liability for tax for any taxable year ending after the date of the decedent's death and before the applicable date (as defined in section 645(b)(2) [26 USCS 645(b)(2)]).

13 General Burden Shifting Rule 7491(a) Income, Estate, or Gift Tax

14 Burden Shifting Threshold Requirements- 7491(a)(1) 1. Credible evidence 2. Factual issue

15 Four Limitations 7491(a)(2) 1. Substantiation I.R.C. sec general I.R.C. sec. 274 meals & ent. Many others 2. Records maintenance

16 Limitations (cont.) 7491(a)(2) 3. cooperated with reasonable requests 4. Net worth and size limits for partnerships, corporations, and trusts see code cross reference

17 Determined at Close of Trial

18 Statistical Info As Income Basis 7491(b) BLS & CPI used to reconstruct income Sole source Burden of proof on Commissioner Commissioner shows linking evidence

19 Penalties & Additions to Tax 7491(c) Excludes interest, excise taxes, & trust fund penalty Commissioner has burden of production Example TP must show reasonable cause, substantial authority or other defense

20 General Rule for Burden of Proof in Tax Cases Burden of proof is on the taxpayer

21 Supreme Court Case Welch v. Helvering, 290 U.S. 111, 115 (1933) His [Commissioner s] ruling has the support of a presumption of correctness, and the petitioner [taxpayer] has the burden of proving it to be wrong.

22 Presumption of Correctness Rebuttable presumption Item by item Burden shifts to Commissioner

23 Rare Exceptions to General Rule Unreported income prerequisite Naked assessment as arbitrary determination Unconstitutional Conduct - Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324 (1974)

24 Flowchart on Burden of Proof

25 Questions?