Tax Lawyer's Blog

Internal Revenue Code § 7491 titled Burden of Proof states in part:

(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, the Secretary shall have the burden of proof with respect to such issue.

To get the burden to shift, however, the taxpayer must show that he has maintained good books and records and has cooperated with the IRS’s reasonable requests for witnesses, information, documents, meetings, and interviews.

Section 7491 became law as part of the Internal Revenue Restructuring and Reform Act of 1998. Before it was enacted adjustments made IRS auditors and included in a Notice of Deficiency were presumptively correct and the burden was on the taxpayer to prove them false.

Now all that is required to shift the burden to the IRS, is the introduction by the taxpayer of credible evidence.

Tanya M. Marcum, JD, assistant professor in the department of finance and law at Central Michigan University, wrote for the CPA Journal about the importance of good record-keeping:

Good record-keeping is essential in protecting deductions during an IRS audit. The IRS operates during an audit under the basic premise of “no substantiation, no deduction.” The best records indicate whom one has paid, when one has paid them, how much one has paid them, and what type of expense was incurred.

If the audit remains contested, good record-keeping should cause the Tax Court to find that the IRS should bear the burden of proving that the deductions are not legitimate.

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