Most Tax Court cases settle. The ones that do not are tried before a single judge, with no jury, usually in a federal courtroom in the trial city you requested. Trials are often shorter than people expect, because the parties have already stipulated most of the facts. What remains is the part of the case that is genuinely in dispute.

The question that controls nearly every Tax Court trial is simple: who has the burden of proof on each issue?

The general rule: the taxpayer bears the burden

Tax Court Rule 142(a)(1) puts the burden of proof on the petitioner, except as otherwise provided by statute or determined by the Court. The IRS's determination in the notice of deficiency is the starting point, and you must show it is wrong.

That rule has three important exceptions in the same sentence. The burden is on the Commissioner for new matter, increases in deficiency, and affirmative defenses pleaded in the answer. If the IRS raised something for the first time in its answer, it has to prove it. See the IRS answer and your reply.

When the burden shifts under IRC 7491(a)

IRC 7491(a)(1) shifts the burden of proof to the IRS on a factual issue if the taxpayer introduces credible evidence on that issue in a court proceeding about income, estate, or gift tax liability. But IRC 7491(a)(2) adds conditions. The shift applies only if:

  • The taxpayer has complied with the substantiation requirements of the Code.
  • The taxpayer has maintained all required records and cooperated with reasonable IRS requests for witnesses, information, documents, meetings, and interviews.
  • For a partnership, corporation, or trust, the taxpayer meets the net worth limits referenced in IRC 7430(c)(4)(A)(ii).

In practice, the burden shift matters less than people hope. A taxpayer who has the records and cooperated fully usually wins on the evidence regardless of who bears the burden. The shift tends to matter only in close cases where the evidence is evenly balanced.

Statistical reconstructions

IRC 7491(b) puts the burden on the IRS for any item of income an individual's tax was reconstructed from solely by using statistical information on unrelated taxpayers. If the IRS estimated your income from industry averages alone, it has to prove that number.

Penalties: the burden of production

IRC 7491(c) says the IRS has the burden of production in any court proceeding regarding an individual's liability for any penalty, addition to tax, or additional amount. Rule 142(a)(2) cross-references it.

Burden of production means the IRS must come forward with evidence that the penalty applies. For many penalties, that includes showing that written supervisory approval was obtained when IRC 6751(b) requires it. Once the IRS meets its burden of production, the taxpayer generally must prove defenses such as reasonable cause.

Fraud: clear and convincing evidence

Rule 142(b) puts the burden of proof on the IRS for fraud with intent to evade tax, and requires that it be carried by clear and convincing evidence, consistent with IRC 7454(a). That is a higher standard than the preponderance of the evidence that applies to ordinary issues. Fraud cases are tried very differently from ordinary deficiency cases.

The rules of evidence

IRC 7453 requires Tax Court proceedings to be conducted in accordance with the rules of evidence applicable in nonjury trials in the U.S. District Court for the District of Columbia. In practice, the Federal Rules of Evidence apply. Hearsay rules, authentication, and foundation all matter, which is why stipulating documents under Rule 91 is so valuable.

Small tax cases are different. Rule 174(b) admits any evidence the Court deems to have probative value.

Testimony and credibility

The judge decides credibility, and Tax Court judges hear a great deal of taxpayer testimony. A few principles hold up:

  • Documents beat memory. Testimony that is consistent with contemporaneous records is persuasive. Testimony that contradicts them is not.
  • Specifics beat generalities. "I drove about 30,000 business miles" is weaker than a log, calendar, or set of invoices that shows where you went and why.
  • Consistency matters. The judge will compare your testimony to what you told the examiner, what is in your protest, and what is in the stipulation.
  • Third parties help. A customer, vendor, or former employee who confirms your account is often the most credible witness in the room.

Preparing your own testimony

Most taxpayers testify in their own cases, and most have never testified before. Preparation is not coaching; it is organization. Before trial:

  • Walk through the stipulated exhibits so you can explain each document you rely on, what it is, and why it matters.
  • Prepare for the obvious cross-examination questions. If the examiner doubted you on a point, IRS counsel will ask about it.
  • Answer the question asked. Volunteering extra information on cross rarely helps.
  • If you do not know or do not remember, say so. A confident guess that is later contradicted by a document costs more credibility than an honest "I do not recall."

Estimates and their limits

When a taxpayer proves that a deductible expense was incurred but cannot prove the exact amount, courts may estimate under the rule from Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930). Do not build a case around it. Courts estimate conservatively and bear heavily against the taxpayer whose inexactitude created the problem. And IRC 274(d) overrides estimation entirely for certain expenses, such as travel and listed property, which require specific substantiation.

The shape of the trial day

  1. The stipulations and joint exhibits are already in the record.
  2. Each side may make a brief opening statement, though many judges prefer the parties go straight to evidence.
  3. The petitioner usually presents first: testimony, then documents not already stipulated.
  4. IRS counsel cross-examines, and the judge may ask questions.
  5. The IRS presents any witnesses, often the revenue agent or a third party.
  6. The judge sets a briefing schedule or, in some cases, rules from the bench.

After the evidence closes

Rule 151 governs post-trial briefs. Unless the judge orders otherwise, simultaneous opening briefs are due 75 days after trial, and answering briefs 45 days after that. Briefs include proposed findings of fact, each tied to the transcript or exhibits. Proposed findings are where you translate the trial into the facts you want the opinion to contain.

Rule 152 allows a judge to state findings and an opinion orally from the bench when satisfied about the facts and that the law is clear. Bench opinions are not precedent, though they bind the parties in the case.

Here's the part most people miss: the trial is won in the months before it, through the record you build in stipulations and the documents you exchange under the pretrial order. Trial day is when you present that work. See the pretrial order and calendar call.

Let's talk

Burden of proof decides close cases, and Tax Court trials are full of close cases. Darrin T. Mish is admitted to practice before the U.S. Tax Court. If your case is headed for trial, call (813) 229-7100. Let's talk.