Category: Tax Returns, Examinations & IRS Procedure
Subject: Examinations
Title: Burden of Proof--Deduction Case
IRC Sections: 162
Filename: 1134.html
Date Produced: 1/96 Copyright 1998, The Tax Resource Group. All rights reserved. Telephone
800-578-3498. Internet: www.taxresourcegroup.com It seems that the courts have drawn a very sharp distinction between
unreported income cases and those cases dealing with the allowability of
deductions. The consistent attitude of the Tax Court is the burden of proof
does not shift to the IRS no matter what the state of the notice of deficiency.
The leading case, widely cited and followed is Gatlin v. Commr., 754 F2d
921, 85-1 USTC ¶9237 (CA-11, 1985), Aff'g TC, 44 TCM 945. The excerpt
set forth below provides the logical underpinning for the decision. In determining which party bears the burden of proof, it is necessary
to differentiate between unreported income cases and deduction cases. In
unreported income cases, once it has been shown through evidence that the
Commissioner's determination is arbitrary and erroneous, the ultimate burden
of proof or persuasion shifts to the Commissioner. Jackson v. Commissioner
[CCH Dec. 36,460], 73 T. C. 394, 401 (1979). This situation is rare and
only occurs where the Commissioner has introduced no substantive evidence,
and the evidence shows that the claimed tax deficiency arising from unreported
income was derived by the government from unreliable evidence. See Jackson
v. Commissioner, supra; \3/ Weimerskirch v. Commissioner [79-1 USTC ¶9359],
596 F. 2d 358 (9th Cir. 1979), rev'g, [CCH Dec. 34,214] 67 T. C. 672 (1977).
The rationale behind this rule is that a taxpayer should not bear the burden
of proving a negative (no unreported income) if the Commissioner can present
no substantive evidence to support his deficiency claim. See Cohen v. Commissioner
[59-1 USTC ¶9388], 266 F. 2d 5, 12 (9th Cir. 1959).
This is a deduction case. At all times the taxpayer must come forward with
evidence to support his entitlement to the deduction and the amount of that
entitlement. See generally Conforte v. Commissioner [CCH Dec. 37,205], 74
T. C. 1160, 1178 (1980); Rockwell v. Commissioner [75-1 USTC ¶9324],
512 F. 2d 882, 885 (9th Cir.), cert. denied, 423 U. S. 448, 96 S. Ct. 448,
46 L. Ed. 2d 386 (1975). When claiming a deduction, the taxpayer has admitted
the full amount of income but seeks to pay less than the applicable tax
on that income by utilizing available deductions. Because the taxpayer is
privy to the facts that substantiate a deduction, he must bear the burden
of proving his right to, and amount of, a claimed deduction. This stricter
burden for deduction cases makes sense because unlike unreported income
cases the taxpayer is not required to prove a negative.
Moreover, when a taxpayer challenges the government's disallowance of part
or all of a deduction, the Commissioner"s original notice of deficiency
and the method of calculation of the deficiency at the administrative level
is not evidence in the Tax Court. It has no relevancy with respect to the
proceeding. The Tax Court undertakes a de novo review. If the government
takes a position against a taxpayer that is not substantially justified
and the taxpayer prevails, it is possible that the taxpayer has a remedy
for attorney fees under the Equal Access to Justice Act, 28 U. S. C. §2412(d)(1)(A).
See Ashburn v. United States [84-2 USTC ¶9761], 740 F. 2d 843 (11th
Cir. 1984). The taxpayer's remedy is not one of burden shifting as sought
by appellants in this case. The judgment of the Tax Court is AFFIRMED.
I have the full text of this case as well as other cases and case excerpts.
Would you like to receive them by mail or by Federal Express?
|
