“Am I in Russia?” one of my clients asked when we were reviewing his options facing an IRS audit. “Close,” I replied. “You are facing American tax justice, which is similar to the Soviet, but without the charm.” As we enter the season of W-2’s and 1099’s being sent to all of us taxpayers, a quick reminder of what the IRS could have in store for us is in order.
The simple fact is that commonly accepted civilized notions of justice are tossed out the window when it comes to taxes. The following five points illustrate the Sisyphean task facing taxpayers, especially ones dealing with the weight of IRS enforcement.
Innocent Until Proven Guilty—While this is true almost everywhere in the United States, in the tax world one is guilty until proven innocent. This is embedded in the tax law, specifically Internal Revenue Code section 7491. So yes, as in the former Soviet system, primacy is accorded the state.
Taxpayer Bears the Burden of Proof—There is a cascade of standards of proof, ranging from “beyond a reasonable doubt” at the highest level, to a “preponderance of the evidence” (the least difficult burden). Taxpayers generally must demonstrate their innocence at a rather high level, the so-called “clear and convincing” standard. That means the taxpayer must be at a two-thirds strength level. Fairly daunting odds. As if that was not hard enough, the government tries to set the “clear and convincing” standard even higher, as you will see.
The Taxpayer Must Show That Its Position is the Only Reasonable One—The government routinely argues this in setting the burden and there is some supporting case law, but it is a foolish concept. Think about it. If the only way a person can prevail is by establishing its position is the only reasonable one, hasn’t the clear and convincing standard been abolished and in its place a beyond a reasonable doubt standard erected? If so, individuals in a simple tax case have the same burden as a prosecutor seeking capital punishment. As William F. Buckley, Jr. might have said, reductio ad absurdum.
Taxpayer Must Clearly and Unambiguously Prove Its Case—Another set of buzz words used by the government that has support in some courts, but ramps up the already onerous burden people face.
A Tax Provision Of Long Standing Must Be Assumed To Be Correct—Yet another buzz phrase government authorities rely on. But why? Should Ferdinand and Isabella have said, “Sorry Senor Columbus. Since people in authority have believed the earth is flat for 500 years, no undertaking to the contrary can be considered.”
The answer? Tax simplification…tax justice reform…a revamped IRS…or take two aspirin and read another blog in the morning.
Ken Zemsky is a preeminent tax attorney and the author of the upcoming novel The Nation’s Hope, about the William Buckley 1965 NYC mayoral campaign. Follow Ken at KennethTZemsky.com.