Updated June 15, 1998
CRS Report for Congress
Received through the CRS Web
Taxpayer Protections in the Proposed IRS
Restructuring Act: Burden of Proof
Marie B. Morris
American Law Division
The Internal Revenue Service Restructuring and Reform Act of 1997 (H.R.2676,
105 Congress) contains a number of provisions designed to strengthen taxpayer rights
in dealings with the Internal Revenue Service. The House passed its version of the bill
on November 5, 1997, and the Senate passed its version on May 7, 1998. This is one of
a series of CRS reports designed to discuss the taxpayer protection and rights provisions
in that bill. This report discusses the proposal to shift the burden of proof in court
proceedings relevant to ascertaining the income tax liability of a taxpayer. The provision
can be found in section 301 of the House version and section 3001 of the Senate version.
The Internal Revenue Service Restructuring and Reform Act of 1997, H.R. 2676
(105th Congress), contains a number of provisions designed to strengthen taxpayer rights
in dealings with the Internal Revenue Service. Both the House and Senate versions of the
bill would amend the Internal Revenue Code to add a new section 7491, which is designed
to shift the burden of proof from the taxpayer to the government in court proceedings
relating to determinations of income tax liability. This report discusses section 301 of the
House version of the bill and section 3001 of the Senate version.
Under current law, in noncriminal tax cases, the burden of proof is generally on the
taxpayer.1 This is a common law provision, not a statutory edict. Assuming the case has
reached the trial stage, the government presents the Internal Revenue Service
determination or assessment. The IRS determination as to the amount of tax owing is
presumed to be correct. If the taxpayer did not appear or did not defend, the government
would win the case. In order to win, the taxpayer must prove by a preponderance of the
Tax Court Rule 142 provides that the burden of proof is on the taxpayer except as otherwise
provided by statute or determined by the court.
Congressional Research Service ˜ The Library of Congress
evidence that the IRS determination is incorrect, and if the taxpayer is suing for a refund,
the correct amount of the tax. If the taxpayer has introduced sufficient evidence to allow
a reasonable judge to decide in the taxpayer's favor, the presumption of correctness is
rebutted. The winner of the case will be the side that establishes, by a preponderance of
evidence, that its interpretation of the facts should prevail. Ties go to the government
since the burden of proof is on the taxpayer. There are several situations in which the
Internal Revenue Code or Tax Court rules place the burden of proof on the government.2
At common law there were a number of theories for assigning the burden of proof
to a party. Among them were the party who has the affirmative issue should have the
burden of proof; the plaintiff should have the burden of proof; the party who is alleging a
disfavored contention should have the burden of proof; the party alleging the least likely
scenario should have the burden of proof; the party with the knowledge about a particular
issue should have the burden of proof; and the burden of proof could be allocated by
The general allocation of the burden of proof to the taxpayer has been justified by
several of the common law principles. It is generally thought to be appropriate to place
this burden on the taxpayer because the taxpayer usually has control of the evidence on the
issues.4 In suits for refunds, it is thought to be reasonable to require the plaintiff to explain
why the taxpayer engaged in the seemingly inconsistent actions of voluntarily overpaying
the taxes and then requesting the money back.5 In collection suits brought by the
government, it is thought to be appropriate to place the burden on the taxpayer for a
number of reasons. One is that to do otherwise would place a taxpayer who failed to
respond to the government's notice of deficiency in a better position than a taxpayer who
paid the taxes and then sued for a refund. Another is that the taxpayer is alleging a
disfavored scenario or a less likely situation, i.e., the most common scenario is that a
citizen owes its government some taxes and the government is not in the best position to
calculate the taxes due. If the citizen disagrees with the government's calculation, then the
citizen should prove what the correct amount is. Finally, placing the burden of proof on
the taxpayer advances the goal of making the tax collection system more efficient.6
Under Tax Court Rule 142, the government has the burden of proof when a case involves
the issue of fraud with the intent to evade tax (IRC § 7454(a)), in cases involving certain taxes on
foundation managers (IRC § 7454(b)), in cases involving transferee liability (IRC § 6902(a)), in
cases involving fraudulent information returns under 6201(d), and in cases where the IRS asserts
affirmative defenses, new matters, or increases in deficiencies.
Martinez, Tax Collection and Populist Rhetoric: Shifting the Burden of Proof in Tax
Cases, 39 HASTINGS L.J. 239, 249-254 (1988).
Saltzman, IRS PRACTICE AND PROCEDURE, 2D ED. ¶1.05[c] (1991).
Martinez, supra, at 262.
Martinez, supra, at 262-263.
The House version of proposed IRC § 7491 states:
(a) GENERAL RULE--The Secretary shall have the burden of proof in any
court proceeding with respect to any factual issue relevant to ascertaining the
income tax liability of a taxpayer.
(b) LIMITATIONS--Subsection (a) shall only apply with respect to an
issue if-(1) the taxpayer asserts a reasonable dispute with respect to such
(2) the taxpayer has fully cooperated with the Secretary with
respect to such issue, including providing, within a reasonable period
of time, access to an inspection of all witnesses, information, and
documents within the control of the taxpayer, as reasonably requested
by the Secretary, and
(3) in the case of a partnership, corporation, or trust, the
taxpayer is described in section 7430(c)(4)(A)(ii).
(c) SUBSTANTIATION--Nothing in this section shall be construed to
override any requirement of this title to substantiate any item.
The bill would strike IRC § 6201(d), enacted as part of the Taxpayer Bill of Rights
2, P.L. 104-168, § 602(a). IRC § 6201(d) permits taxpayers who assert a reasonable
dispute relating to an item of income reported on an information return and who fully
cooperate with the IRS to shift the burden of proof to the IRS. It requires the IRS to
come forward with probative evidence in addition to the information return. This
paragraph was enacted as part of an effort to allow taxpayers to protect themselves against
the filing of fraudulent information returns (Forms 1099 or W-2). Presumably this
provision would be dropped because it would be subsumed by proposed IRC § 7491.
The amendments would apply to court proceedings arising in connection with
examinations begun after the date of enactment.
The Senate version of proposed IRC § 7491 states:
(a) BURDEN SHIFTS WHERE TAXPAYER PRODUCES CREDIBLE
(1) GENERAL RULE.-If in any court proceeding, a taxpayer
introduced credible evidence with respect to any factual issue relevant
to ascertaining the income tax liability of the taxpayer, 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).
(3) COORDINATION.--Paragraph (1) shall not apply to any
issue if any other provision of this title provides for a specific burden
of proof with respect to such issue.
(4) EXPANSION TO TAX LIABILITIES OTHER THAN
INCOME TAX.--In the case of court proceedings arising in
connection with examinations commencing 6 months after the date of
the enactment of this paragraph and before June 1, 2001, this
subsection shall, in addition to income tax liability, apply to any other
tax liability of the taxpayer.
(b) USE OF STATISTICAL INFORMATION ON UNRELATED
TAXPAYERS.--In the case of an individual taxpayer, the Secretary shall have
the burden of proof in any court proceeding with respect to any item of income
which was reconstructed by the Secretary solely through the use of statistical
information on unrelated taxpayers.
(c) PENALTIES.--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.
The amendments would apply to court proceedings arising in connection with
examinations commencing after the date of enactment.
Effect of Bill
The House and Senate versions of the bill are quite similar. The House version would
impose the burden of proof on the government in any court proceeding with respect to any
factual issue relevant to determining the income tax liability of the taxpayer. The Senate
version would impose the burden on the government for a particular factual issue relevant
to determining the income tax liability of the taxpayer once a taxpayer introduced "credible
evidence" with respect to that issue. Both versions require the taxpayers to keep records
necessary to substantiate any item. Both versions require that the taxpayer cooperate with
reasonable requests by the IRS for access to witnesses, information, and documents. The
Senate version requires cooperation with respect to meetings and interviews. The House
version requires full cooperation, the Senate version only requires cooperation. Both
versions of the bill limit access to this provision to partnerships, corporations, or trusts
with net worths of $7 million or less. (There is no limit on an individual's net worth.)
The Senate version contains several provisions not in the House bill. First, it would
put the burden of proof on the government any time the IRS attempts to reconstruct an
individual taxpayer's income through the use of statistical information derived from
unrelated taxpayers. Second, it would place the burden of production on the government
in cases where the individual is liable for any penalty, addition to tax, or additional amount.
Third, for a limited time dating from 6 months after enactment until May 31, 2001, the
burden shift would apply to any tax liability, not just income tax liability. Fourth, the
Senate bill clarifies that proposed section 7491 would not apply if another section of the
Internal Revenue Code deals with the burden of proof on a specific issue.
It is difficult to determine what might actually happen in courts operating under either
version of this provision. Since the bill would require taxpayers to maintain any records
required to substantiate any item and to cooperate with the IRS, including providing
access to witnesses and records in a timely fashion, it is possible that this provision might
not have a great impact on the conduct of tax trials.7 Many tax disputes do not make it to
trial. Presumably, those disputes will continue to be resolved as they are now; however,
one cannot foresee if the shifting of the burden of proof might induce more taxpayers to
risk the hazards of litigation because the balance of proof would be tilted in their favor.
One cannot know whether shifting of the burden of proof might induce the IRS to try to
settle more cases administratively because of the hazards of litigation might be tipped
Both versions of the bill would require the IRS to do careful trial preparation. With
the government bearing the burden of proof, the IRS would have to produce more, and
more credible, evidence than the taxpayer. The House bill is limited to income tax
proceedings. The Senate bill would apply not only to income tax proceedings, but also,
for a limited period, to all tax proceedings. Estate, gift, and generation-skipping taxes,
employment taxes, and excise taxes are a few of the additional taxes that come to mind.
Under the Senate bill, the IRS cannot rely on statistics alone to make its case. Also under
the Senate bill, if neither the taxpayer nor the IRS introduces evidence about penalties,
then the IRS should not be sustained on the penalty issue. Under current law, many of the
penalties are automatically calculated and imposed based on amount owed and length of
time the tax was owed.
Because the bills require taxpayer cooperation as a condition of shifting the burden
of proof, taxpayers will probably continue to cooperate with the IRS at the administrative
level, at least to the extent that they do now. It is possible the first part of any court
proceeding would involve a determination as to whether the taxpayer had cooperated with
the IRS and which party should bear the burden of proof. This could add to the length
and complexity of trials and, presumably, create a new ground for appealing an adverse
decision. If the burden is not shifted to the government because of lack of taxpayer
cooperation, taxpayers would continue to litigate under the same conditions as under
E.g., Tax Court Rule 91 requires parties to stipulate to all matters on which complete or
partial agreement can be reached which are relevant to the pending case, regardless of whether the
matters involve fact, opinion, or the application of law to fact. Rules 120-124 describe various
procedures for decisions without trial, including judgment on the pleadings and summary judgment.
If the burden is shifted to the government, there may or may not be a change in the
trial outcomes. Since it is possible that courts would continue to operate much as they
do now, retaining a presumption of correctness for IRS determinations and the
requirement that taxpayers produce the evidence over which they have control, the shift
in the burden of proof may simply mean that ties go to the taxpayer. On the other hand,
a shift of the burden of proof may cause the government to become more intrusive in its
search for evidence and in its demands for cooperation in order to build its case. Congress
may be asked to impose more onerous reporting requirements, so that taxpayers could be
required to generate and keep information that the IRS might need should litigation arise.
Failure to keep such records could give rise to unfavorable presumptions against the
taxpayer. Increased intrusiveness and increased record keeping burdens would be likely
to affect all taxpayers, not just those with tax disputes they are litigating against the
Proponents of the bill believe it is designed to create fairer conditions when taxpayers
must litigate income tax issues with the IRS. Proponents analogize tax collection to
criminal cases and argue that taxpayers should be presumed innocent until proven guilty.
They believe that taxpayers should win when both sides' evidence is equally persuasive.
Critics of the bills point out that tax disputes are civil matters, and historically it has been
deemed appropriate to place the burden of proof on the taxpayer. Critics of the bills worry
that a shift in burden of proof may encourage fewer taxpayers to settle their disputes,
lengthen the dispute resolution process, or encourage more taxpayers to resist challenges
by the IRS. Critics fear that the tax collection process could be slowed, and the amount
of uncollected taxes could rise.