Important Tax Cases: Wickwire v. Reinecke and the Burden of Proof in Tax Cases
May 12, 2005
Courts have an important role to play in tax policy, so each week we will review the highlights and rulings of important tax cases. This week’s case is Wickwire v. Reinecke, the case in which the U.S. Supreme Court ruled that the burden of proof in civil tax cases lies on the taxpayer rather than the Internal Revenue Service (IRS).
In this case Wickwire received an assessment for estate taxes from the IRS, and challenged it in court. At trial, the judge ruled that he could not review the tax assessment unless the IRS could prove fraud, bad faith, or the use of mistaken legal theory. In other words, the trial judge ruled that the IRS assessment was final and essentially unreviewable.
On appeal, the Supreme Court overruled the trial judge. In its opinion, the Court said that “…the decision of the Commissioner of Internal Revenue was not conclusive, but only furnished prima facie evidence of its correctness.” The Court went on to say that “…the burden of proof was…on the petitioner…because he was the plaintiff.”
What that means legally is that taxpayers bear the burden of proof when challenging tax assessments by the IRS, which will be treated as conclusive unless the taxpayer can produce evidence that the IRS made an erroneous decision. What that means practically is that taxpayers need to keep copies of all their tax records in order to substantiate their claims if they ever challenge the IRS.
Recently, Congress passed a law which made some changes to the burden of proof in tax cases. These changes came as a result widespread allegations of taxpayer abuse by the IRS. For a commentary on the new burden of proof rules, see The Dangers of Symbolic Legislation: Perceptions and Realities of the New Burden-of-Proof Rules, by Professor Steve Johnson.