Judge Holmes Decides on Burden of Proof (Persuasion) (9/3/26)

In Risan v. Commissioner, T.C. Memo. 2026-78, TC here at #93, TN here, and GS here [to come], Judge Holmes decided significant factual issues on burden of proof. The key reason I thought this case interesting is that Tax Court Judges often, after noising about burden of proof, will just hold that, in effect, burden of proof is irrelevant to the outcome because the Judge in the particular case has resolved those factual issues by a preponderance of the evidence. That is simply to say that, in the normal case where the preponderance of the evidence standard applies, burden of proof is relevant only if the Judge is in factual equipoise unable to determine whether or not a critical fact is more likely than not. In that state of equipoise, the party with the burden of persuasion loses.

Judge Holmes sets up the discussion at the beginning of the Opinion section (starting at *17, footnote omitted):

          We begin with a number of issues for which Mr. Risan presented no evidence or argument, or about which he included only an underdeveloped argument in his brief. Taxpayers usually bear the burden of proof in cases before us. Rule 142(a). The Code does sometimes shift this burden to the Commissioner. See § 7491(a). But when neither party presented evidence in these cases, we simply find that Mr. Risan did not comply with the Code’s recordkeeping requirements and did not cooperate with the Commissioner’s reasonable requests for information. This means that, for a great many issues, we find against Mr. Risan and for the Commissioner.

 Other JAT comments:

1. Judge Holmes also addressed the statute of limitations. Judge Holmes found (i) there was a 25% omission in the years involved invoking the six-year statute of limitations and (ii) for some of the years during the six-year period, the taxpayer timely signed consents to extend. Judge Holmes said that, although the taxpayer testified that he did not sign the forms, visual review of the forms permitted him to “find it more likely than not that he did sign them.” (*19.) Although Judge Holmes did not say it directly, that finding means that it is more like than not that the taxpayer testified untruthfully (whether or not the taxpayer intended to deceive is a different issue).

2. Much of the IRS case rested on bank-deposits analysis. Judge Holmes said (*26-*27):

The taxpayer bears the burden of showing that the deposits are not taxable income but are derived from a nontaxable source. Welch v. Commissioner, 204 F.3d 1228, 1230 (9th Cir. 2000), aff’g T.C. Memo. 1998-121. A taxpayer may try to rebut the Commissioner’s bank-deposits analysis in its entirety. This is rare, but once in a while an analysis has so many obvious errors and is so out of tune with reality that we [*27] toss it out entirely. See, e.g., Westby, 88 T.C.M. (CCH) 80. This can happen if the taxpayer introduces credible evidence sufficient, if believed, to demonstrate by a preponderance of the evidence that the Commissioner’s determination is excessive, i.e., erroneous and/or arbitrary, “without rational foundation.” Helvering v. Taylor, 293 U.S. 507, 514–15 (1935). If a taxpayer successfully undermines the Commissioner’s bank deposits analysis by showing that it includes nontaxable deposits, the burden shifts back to the Commissioner to rehabilitate it. Garibyan v. Commissioner, T.C. Memo. 2025-105, at *13.

For some of the years, Judge Holmes found that the errors were significant enough to defeat the bank-deposits as a proxy for income. (E.g., 2014 at *27-29.) But, for other bank-deposits determinations, the taxpayer had little proof, so “the thin record on this issue benefits the Commissioner.” (*33.)

Judge Holmes find that the taxpayer raised “an argument for the first time in a reply brief is untimely,” so Judge Holmes concluded he would not consider the argument because the IRS was unable to respond. (*34.)

3. For the above discussion on burden of proof, I assumed, as was the case in Risan, that the preponderance of the evidence standard applies. Preponderance of the evidence is often verbalized as more likely than not. Stated in confidence percentages, a factfinder must be at least 51% confident that the fact existed. I have questioned how factfinders can find a fact 51% likely, meaning that it is 49% unlikely. Is there a meaningful difference between a 51% confidence level and a 49% confidence level? In any event, on that construct, the range of equipoise in factfinding is between 51% and 49%. I have suggested that, in the real world, the range of equipoise is likely broader than 51-49. See e.g., as to valuations, John A. Townsend, Burden of Proof in Tax Cases: Valuation and Ranges—An Update, 73 Tax Lawyer 389 (2020), SSRN here (the entire article addresses the issue, so I do not provide pinpoint citations), and in the analogous context of “lawfinding,” John A. Townsend, Loper Bright Flip Flops on Chevron Deference: A Tax Lawyer's Perspective, 79 Tax Law. 323, 336-341 (2026), SSRN here (discussing ranges determining “best” interpretations).

Other confidence level standards may apply in other cases—e.g., “clear and convincing” for civil fraud determinations in tax cases and “beyond a reasonable doubt” in criminal cases. If the range argument I describe in the preceding paragraph is correct or at least fair (whatever that means) for preponderance of the evidence, than a similar analysis should apply for these higher standards of proof. As I note in Federal Tax Procedure, here, there is less consensus as to how to state these higher standards in percentages of confidence levels. See the Practitioner Edition at pp. 387-388 (clear and convincing) & 706 (beyond a reasonable doubt, see particularly n. 3071). For present discussion, we might say that clear and convincing is 70% confidence level and beyond a reasonable doubt is 95% confidence level. Each of those confidence levels must conceptually have some range on either side of the stated percentage where the finder of fact is not sufficiently convinced that, as to the critical fact, the finder is in some type of equipoise meaning the factfinder is unable to decide one way or the other. In those cases, the allocation of the burden of proof decides the case, meaning that the party required to meet that level of proof loses. (At least that’s my story and, for now, I am sticking to it but express my willingness to learn differently (in Bayesian reasoning to update my priors).)