Is the burden of proof on the IRS during an Audit? It might shock you to learn that the burden of proof in an IRS audit, and in most dealings with the IRS, lies with the U.S. taxpayer, not the IRS.
Key Takeaways on Is the Burden of Proof on the IRS During an Audit:
- The legal adage of "innocent until proven guilty" does not apply in an IRS audit.
- Under the IRS’s "Burden of proof" doctrine, the taxpayer holds the burden to provide substantial evidence that all entries, deductions, and/or statements contained within a tax return are true.
- Generally speaking, this would include cancelled checks, financial reports, or institutional statements, and receipts. Additional substantiation is required for car/vehicle expenses, travel, specific gifts, and entertainment expenses.
The Burden of Proof is On the Taxpayer?
Why isn't the burden of proof on the IRS during an audit or any dealings with the agency? This standard is quite different from the American perspective of "innocent until proven guilty" or the requirement of the IRS to prove its case against you "beyond a reasonable doubt." Unfortunately, when a US taxpayer faces the IRS, they are not in a position of strength or power. At least not initially.
An experienced U.S. tax attorney will help to change this equation and shift the balance of power into a more favorable position for you. How will they accomplish this? While the taxpayer bears the burden of proof in an IRS audit, the IRS must adhere to all U.S. tax laws and to all Generally Accepted Accounting Principles (GAAP). The average US taxpayer lacks the credibility or standing to argue either point with an IRS revenue officer or auditor. Tax attorneys possess extensive expertise in tax and accounting, enabling them to hold the IRS accountable to U.S. tax laws and accounting procedures.
Would It Surprise You To Learn that Most IRS Revenue Officers are Not Tax Experts, or Even Certified Public Accountants?
IRS Revenue officers are not required to be tax experts or even Certified Public Accountants (CPAs). They have one responsibility: collecting taxes. IRS Revenue Agents are responsible for conducting audits. Unfortunately, even the Revenue Agent is not required to be a CPA.
This is one of the many reasons why a US taxpayer should never communicate directly with the IRS. As an experienced tax attorney can tell you based on decades of experience with IRS and state tax audits, it surprises many clients to learn how much time tax attorneys are required to spend educating the auditor on GAAP accounting, accrual accounting concepts, and the application of U.S. tax law to their clients' unique situations.
This is why it is so important to work with an experienced tax attorney if you have been contacted by the IRS or any state tax agency regarding an audit. A tax attorney can limit disclosures to the matter at hand, protecting the taxpayer's interests and focusing the audit to prevent "audit creep."
Audit Creep: Using Information Provided by the Taxpayer to Expand the Scope of the Audit
What is audit creep? Typically, an IRS audit is focused on specific questions. It is in the IRS's interest for the agent to "develop information" during the scope of the audit that allows the auditor to expand the focus of the audit into additional parameters, or across multiple tax years. Audit creep poses a substantial risk for any U.S. taxpayer, leading to a significantly more expensive check to the agency at the conclusion of the audit.
Your tax attorney should keep the audit focused and limit the scope and risks associated with the central questions at hand. Unfortunately, many taxpayers, in an effort to seem open, honest, and cooperative, provide far too much information to the IRS in response to an auditor's questions. This mistake inadvertently provides the IRS auditor with the justification to expand the scope of the audit, as well as to include the tax years in question.
A tax attorney can argue the taxpayer's position based on the facts, as well as supporting tax laws and accounting strategies. Once your tax attorney has successfully presented an argument, the burden of proof shifts back to the IRS.
Is the Burden of Proof on the IRS or the Taxpayer?
Is the burden of proof on the IRS or the taxpayer in any tax audit? A U.S. taxpayer signs their tax return affirming the statement "Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete." The burden of proof lies with the taxpayer when it comes to the entries, deductions, and statements contained within any IRS tax return or supporting document or form.
