Specific Types of Representation · Representing a Taxpayer in Audits/Examinations
Taxpayer's burden of proof
tax year · reviewed 2026-08-18 · I. Ohu
Start from the default and work outwards. The burden is on the taxpayer, and every rule in this topic is an exception to that — each one narrow, each one conditional, and every one of them operating in a court proceeding rather than in the examination. A representative who tells a client at examination that the IRS bears the burden has confused a litigation rule with an audit rule, and the client will substantiate less as a result.
The rule
The default. See the figures table. The Tax Court states it directly: the burden “shall be upon the petitioner, except as otherwise provided by statute or determined by the Court” — with the important carve-out that as to any new matter, increases in deficiency, and affirmative defenses pleaded in the answer, it is on the respondent (Tax Court Rule 142(a)(1)).
The general shift — IRC § 7491(a). “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.”
Four limits are built into that sentence and its subsections.
- It operates in a court proceeding only.
- It reaches factual issues, not questions of law.
- It applies to taxes under subtitle A (income) or B (estate and gift) — not employment or excise taxes.
- It requires credible evidence from the taxpayer first. The shift is a response to evidence, not a substitute for it.
And three conditions. See the figures table (IRC § 7491(a)(2)). Note their character: substantiation, records and cooperation are things a taxpayer either did during the examination or did not. By the time there is a court proceeding it is too late to acquire them.
Coordination. Paragraph (a)(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” (IRC § 7491(a)(3)). Where a specific rule exists — fraud, transferee liability — it governs.
Statistical reconstruction — § 7491(b). For an individual taxpayer, the Secretary has the burden of proof in any court proceeding as to “any item of income which was reconstructed by the Secretary solely through the use of statistical information on unrelated taxpayers.”
Penalties — § 7491(c). See the figures table. Read the noun: it is the burden of production, not the burden of proof, it is limited to individuals, and it operates in a court proceeding.
Fraud. See the figures table (IRC § 7454(a); Tax Court Rule 142(b)).
Transferee liability. The burden is on the Secretary “to show that a petitioner is liable as a transferee of property of a taxpayer, but not to show that the taxpayer was liable for the tax” (IRC § 6902(a); Rule 142(d)).
Information returns. Where the taxpayer asserts a reasonable dispute with an item of income on a third-party information return and has fully cooperated, the Secretary must produce “reasonable and probative information … in addition to such information return” — in a court proceeding (IRC § 6201(d)).
Current figures
| Item | Rule | Authority |
|---|---|---|
| The default | on the petitioner, except as otherwise provided by statute or determined by the Court — and on the respondent as to any new matter, increases in deficiency, and affirmative defenses pleaded in the answerTY2026 | Tax Court Rule 142(a)(1) |
| § 7491(a) conditions | 3 — the taxpayer has complied with the substantiation requirements of the Code; has maintained all required records and cooperated with reasonable requests for witnesses, information, documents, meetings and interviews; and, for a partnership, corporation or trust, meets the net worth and employee limits of IRC § 7430(c)(4)(A)(ii)TY2026 | IRC § 7491(a)(2) |
| Entity net worth and size limits | net worth not exceeding $7,000,000 and not more than 500 employees at the time the action was filed (individuals: net worth not exceeding $2,000,000)TY2026 | 28 U.S.C. § 2412(d)(2)(B) |
| Penalties | the Secretary carries the burden of production in any court proceeding as to the liability of any individual for any penalty, addition to tax, or additional amountTY2026 | IRC § 7491(c) |
| Fraud | on the respondent, carried by clear and convincing evidenceTY2026 | IRC § 7454(a); Rule 142(b) |
How it works in practice
None of this helps at the examination. Every shifting provision here — § 7491(a), (b) and (c), § 6201(d), § 7454(a), § 6902(a) — operates in a court proceeding. At examination the taxpayer proves their return, full stop. This is the single most important point in the topic and the one most often stated wrongly.
The § 7491(a) conditions are earned during the examination, not in court. Substantiation, complete records, and cooperation with reasonable requests for witnesses, information, documents, meetings and interviews. A taxpayer who stonewalled a document request has forfeited the shift before anyone files a petition. So the practical advice is the reverse of what the statute sounds like: behave as though the burden will never shift, because that behaviour is the only thing that shifts it.
“Credible evidence” is a threshold the taxpayer must cross first. The shift is not automatic on filing. The taxpayer introduces credible evidence on a factual issue; only then does the burden move on that issue. And it moves issue by issue — a taxpayer may carry the shift on vehicle expenses and not on unreported income in the same case.
Production is not persuasion. Section 7491(c) gives the Secretary the burden of production on penalties against individuals — enough evidence to show the penalty is appropriate. It does not make the Secretary prove the taxpayer’s defences wrong. Where the taxpayer’s answer is reasonable cause, the taxpayer still carries that. Practitioners who read § 7491(c) as “the IRS has to prove the penalty” advise too optimistically.
The entity conditions exclude most of the businesses that would want them. For a partnership, corporation or trust, § 7491(a) applies only where the taxpayer meets the § 7430(c)(4)(A)(ii) test — the net worth and employee limits in the figures table, measured at the time the action was filed. A profitable mid-sized company is outside it.
Rule 142(a)(1)‘s carve-out is a live tactical point. New matter, increases in deficiency, and affirmative defences pleaded in the answer carry the burden with them to the Commissioner. Where the IRS raises a theory in its answer that was not the basis of the notice of deficiency, that is worth identifying as new matter, because the burden on it belongs to the respondent regardless of § 7491.
Fraud is the strongest taxpayer position in the topic, and the least common. The burden is on the Commissioner and it is carried by clear and convincing evidence — a higher standard than the preponderance that governs elsewhere. Section 7491(a)(3) keeps § 7491 out of it: a specific burden provision governs the issue.
Transferee liability splits. The Commissioner must prove the petitioner is liable as a transferee; the underlying tax liability of the transferor is not the Commissioner’s to prove. A representative who reads § 6902(a) as putting the whole case on the government has read half of it.
The client who stopped answering
During an examination a client, frustrated by a third document request, tells the representative to stop responding. The examination closes unagreed, a notice of deficiency issues, and the client now wants to petition the Tax Court, expecting the IRS to have to prove its case.
Analysis. The shift is gone. IRC § 7491(a)(2)(B) conditions it on the taxpayer having maintained all required records and having cooperated with reasonable requests by the Secretary for witnesses, information, documents, meetings and interviews. The client's decision to stop responding is precisely the failure the condition describes, and it cannot be cured after the fact. The burden in the petition will be the client's. It should have been explained at the moment the client wanted to stop.
The accuracy-related penalty and the optimistic reading
An individual client is petitioning a deficiency that carries an accuracy-related penalty. The client has read that the IRS bears the burden on penalties and asks whether the penalty can simply be ignored in preparing the case.
Analysis. No. IRC § 7491(c) puts the burden of production on the Secretary as to an individual's liability for a penalty, addition to tax or additional amount. Production is not persuasion. Once the Commissioner produces evidence that the penalty applies, the taxpayer's affirmative case — reasonable cause and good faith — remains the taxpayer's to make. The reasonable cause file needs to be built now.
The theory that appeared in the answer
A notice of deficiency disallows a deduction for lack of substantiation. In its answer the Commissioner also asserts, for the first time, that the arrangement lacked economic substance.
Analysis. That looks like new matter. Tax Court Rule 142(a)(1) places the burden on the respondent in respect of any new matter, increases in deficiency, and affirmative defences pleaded in the answer. The substantiation issue stays with the petitioner; the economic-substance theory, raised for the first time in the answer rather than as the basis of the notice, is one the representative should identify as new matter and press. This is independent of § 7491 and does not depend on its conditions.
The corporation that did everything right
A closely held corporation with $19 million of net worth and 40 employees substantiated every item, produced every record and cooperated fully throughout a long examination. Its representative plans to rely on the burden shifting under § 7491(a).
Analysis. It will not shift. For a partnership, corporation or trust, § 7491(a)(2)(C) requires the taxpayer to be described in § 7430(c)(4)(A)(ii), which applies the net worth and employee limits in the figures table, measured at the time the action was filed. The corporation fails the net worth limit despite meeting every behavioural condition. Its exemplary cooperation is still worth having; it just will not move the burden.
Every shifting rule operates in a court proceeding. At examination the taxpayer proves the return. Nothing in § 7491 changes what an examiner may require.
§ 7491(c) is the burden of production, not proof — and only as to individuals. Reasonable cause remains the taxpayer’s to establish.
§ 7491(a) is conditional, and the conditions are behavioural. Substantiation, records and cooperation are earned during the examination and cannot be acquired later.
On transferee liability the Commissioner proves the transferee status, not the transferor’s tax. IRC § 6902(a) says so in terms.
How this has changed
Section 7491 is a 1998 provision, and it changed less than its billing suggested. It was added by the IRS Restructuring and Reform Act of 1998, amended later the same year, and presented at the time as shifting the burden of proof to the IRS. What it actually did was create a conditional, issue-by-issue, court-only shift that requires the taxpayer to produce credible evidence first and to have behaved well during the examination. Material describing it as a general reversal of the burden is describing the political summary rather than the statute.
The penalty provision is the one with real bite, and it is narrower than remembered. Section 7491(c) is not limited by the (a)(2) conditions — it applies “notwithstanding any other provision of this title” — which makes it genuinely automatic. But it is confined to individuals, to the burden of production, and to a court proceeding.
The pre-1998 rules survive untouched where they apply. Fraud has been the Commissioner’s to prove by clear and convincing evidence for far longer than § 7491 has existed, and § 7491(a)(3) expressly stands aside where another provision sets a specific burden. The same is true of transferee liability under § 6902(a) and of the accumulated earnings tax under § 534. Section 7491 sits on top of an older structure rather than replacing it.
The entity thresholds are fixed figures that do not index. The net worth and employee limits in the figures table come from 28 U.S.C. § 2412(d)(2)(B) as in effect on 22 October 1986, applied through § 7430(c)(4)(A)(ii). They are not inflation-adjusted, so the practical reach of § 7491(a) for entities has narrowed every year since 1998 without a word of the statute changing.
Exam focus
Know that the burden is on the taxpayer/petitioner by default, and that every exception in this topic operates in a court proceeding, not at examination.
Know the three § 7491(a) conditions — substantiation, records and cooperation, and for entities the net worth and employee limits — and that the shift is issue by issue and requires the taxpayer to introduce credible evidence first.
Know that § 7491(a) reaches factual issues under subtitle A or B only, and stands aside where another provision sets a specific burden.
Know that § 7491(c) is the burden of production, applies only to individuals, and leaves reasonable cause with the taxpayer.
Know that fraud is the Commissioner’s to prove by clear and convincing evidence.
Know Rule 142(a)(1)‘s carve-out: new matter, increases in deficiency and affirmative defences pleaded in the answer are the respondent’s.
Check yourself
1. At what stage does IRC § 7491 shift the burden of proof? (A) At the start of the examination (B) When the 30-day letter issues (C) In a court proceeding, on conditions (D) At the Appeals conference Answer: C. The statute says “in any court proceeding,” and the shift depends on the § 7491(a)(2) conditions being met.
2. Which is NOT a condition of the § 7491(a) shift? (A) The taxpayer complied with the Code’s substantiation requirements (B) The taxpayer maintained all required records and cooperated with reasonable requests (C) The taxpayer paid the proposed deficiency (D) An entity taxpayer meets the net worth and employee limits Answer: C. Payment is not a condition; the three conditions are substantiation, records-and-cooperation, and for entities the § 7430(c)(4)(A)(ii) limits.
3. What does IRC § 7491(c) place on the Secretary? (A) The burden of proof on all penalties against any taxpayer (B) The burden of production on penalties against an individual, in a court proceeding (C) The burden of disproving reasonable cause (D) Nothing — penalties are always the taxpayer’s to disprove Answer: B. Production, individuals, court proceeding — and reasonable cause remains the taxpayer’s affirmative case.
4. In a Tax Court case involving fraud with intent to evade tax, who bears the burden and to what standard? (A) The petitioner, by a preponderance (B) The respondent, by a preponderance (C) The respondent, by clear and convincing evidence (D) The petitioner, by clear and convincing evidence Answer: C. IRC § 7454(a) and Tax Court Rule 142(b).
5. In a transferee liability case, what must the Commissioner prove? (A) Both that the petitioner is liable as a transferee and that the transferor owed the tax (B) That the petitioner is liable as a transferee, but not that the transferor was liable for the tax (C) Neither — the petitioner bears the whole burden (D) Only the amount of the transfer Answer: B. IRC § 6902(a) splits it expressly.
Change log
- Initial publication from IRC §§ 7491, 7454, 6902 and 6201(d), Tax Court Rule 142, and 28 U.S.C. § 2412(d)(2)(B), each opened at source.
Related topics
- Verification and substantiation of entries on the return 3.3.3.c
- Explanations of taxpayer options (e.g. agree or appeal) 3.3.3.h
- Steps in the process (e.g., initial meeting, submission of IRS requested information) 3.3.3.e
- Financial documents and expense records (e.g., cancelled checks or equivalent, bank statements, credit card statements, receipts, brokerage records) 3.2.4.a