Do Mixed Questions of Fact and Law Have Component Facts and Law for § 7491(a) Purposes? (9/11/25)

I address today what may seem to be a fairly mundane issue, but in some contexts might be important. Readers may already be familiar with § 7491(a), here, titled “Burden shifts where taxpayer produces credible evidence.” The “burden” referred to is the burden of proof and specifically the burden of persuasion. The burden of persuasion is not technically relevant until the end of trial when it determines which party loses in the event the trier of fact is in factual equipoise as to some key fact. From a practical perspective, it is important to keep in mind the conventional trial wisdom that triers of fact are rarely in equipoise, so that ultimately the assignment of the burden of persuasion is meaningless in most cases. Setting that aside and accepting the possibility that the burden of persuasion may be outcome-determinative in some cases, parties will often want to know before the beginning of trial which party has the burden of persuasion so that it can prove its case accordingly.

That is what happened in FBA St. Clair Property C, LLC v. Commissioner (T.C. Case 14406-23, here, at docket # 176 9/11/25), where the petitioner in a syndicated conservation easement case filed a motion in limine for the Court to hold that the conditions in § 7491(a) assigned the burden of persuasion to the IRS. The Court denied the motion, reasoning (Slip Op. 3-4):

          Section 7491(a) states that if a taxpayer produces credible evidence with respect to one or more factual issues relevant to the taxpayer’s tax liability, the burden of proof may shift to the Commissioner as to that issue or issues, as long as the taxpayer complies with certain additional requirements. Section 7491(a) only applies if the issue is factual and not “a mixed question of fact and law” which is “primarily a legal question.” Williams v. Commissioner, 120 F.App’x 289, 293 (10th Cir. 2005) (denying that § 7491(a) applies to the issue of whether a payment was a gift for purposes of § 102(a) or instead a bonus), aff’g T.C. Memo. 2003-97. Here, the issue is whether the transaction was a contribution or gift for purposes of Section 170(c), and we hold that this issue is a mixed question of fact and law, and so Section 7491(a) does not shift the burden to the Commissioner. 

Good Discussion of the Burden of Proof When the Trier of Fact Bases Decision on a Preponderance of the Evidence (12/17/15)

A case decided yesterday by the Fifth Circuit has a pretty good discussion on the effect of § 7491's shift of the burden of proof when the Tax Court may have improperly assigned the burden of proof under that section but had decided the case based on a preponderance of the evidence.  Brinkley v. Commissioner, ___ F.3d ___, 2015 U.S. App. LEXIS 21838 (5th Cir. 2015), here.

This is cumulative to what I state in the text book, but is probably a good reminder for students and new practitioners.  I incorporate the entire discussion on that subject:

A. The Allocation of the Burden of Proof 

"The allocation of the burden of proof [under I.R.C. § 7491] is a legal issue reviewed de novo." Whitehouse Hotel Ltd. P'ship v. Comm'r, 615 F.3d 321, 332 (5th Cir. 2010) (quoting Marathon Fin. Ins., Inc., RRG v. Ford Motor Co., 591 F.3d 458, 464 (5th Cir. 2009)). 

As a general rule, the Commissioner's determination of a tax deficiency is presumed correct, and the taxpayer has the burden of proving the determination to be erroneous. See Tax Ct. R. 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). However, I.R.C. §§ 6201(d) and 7491(a) set forth exceptions to this rule. Under § 6201(d), "if a taxpayer asserts a reasonable dispute with respect to any item of income . . . and the taxpayer has fully cooperated with the Secretary . . ., the Secretary shall have the burden of producing reasonable and probative information concerning such deficiency." Similarly, under § 7491(a), if "a taxpayer [(1)] introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax," n7 (2) complies with certain substantiation requirements, (3) "maintain[s] all records required under this title," and (4) "cooperate[s] with reasonable requests by the Secretary for witnesses, information, documents, meetings, and interviews," then "the Secretary shall have the burden of proof with respect to such issue." Nevertheless, this Court has held that the operation of this burden-shifting scheme is irrelevant when both parties have met their burdens of production and the preponderance of the evidence supports one party. See Whitehouse Hotel, 615 F.3d at 332; Knudsen v. Comm'r, 131 T.C. 185, 189 (2008) ("[A]n allocation of the burden of proof is relevant only when there is equal evidence on both sides.").
   n7 Although this Court has yet to speak on what constitutes "credible evidence," the Eighth and Tenth Circuits have defined the term to mean "the quality of evidence, which after critical analysis, the court would find sufficient upon which to base a decision on the issue if no contrary evidence were submitted. . . ." Blodgett v. Comm'r, 394 F.3d 1030, 1035 (8th Cir. 2005) (quoting Griffin v. Comm'r, 315 F.3d 1017, 1021 (8th Cir. 2003)); accord Rendall v. Comm'r, 535 F.3d 1221, 1225 (10th Cir. 2008) (citing Blodgett, 394 F.3d at 1035). 

Here, the tax court initially found that Brinkley "did not introduce credible evidence regarding the tax character of the income in issue that merited a shifting of th[e] burden [of proof] to [the Commissioner]" under §§ 6201(d) and 7491(a). But the court ultimately declined to hold Brinkley to his burden, concluding instead that "[t]he preponderance of the evidence, without regard to burden of proof, is that [under letter agreement II] petitioner received the value of his stock and compensation for service previously rendered or to be rendered in the future." Accordingly, the resolution of this issue turns on the tax court's finding that the preponderance of the evidence supports the Commissioner's position that the $3.1 million payout in letter agreement II amounted to compensation for both his stock and his services to Zave and/or Google -- and therefore was properly characterized as ordinary income. 

We agree with the tax court's finding that the preponderance of the evidence favors the Commissioner's deficiency determination, so any error in the court's allocation of the burden of proof is harmless. See Whitehouse Hotel, 615 F.3d at 332; Blodgett v. Comm'r, 394 F.3d 1030, 1039 (8th Cir. 2005).

Addendum 12/18/15 9:00am:

Render Unto Caesar -- Another Intersection of Alleged Religion and Tax (10/9/12)

In Hovind v. Commissioner, T.C. Memo. 2012-281, here, the Tax Court decided decided that the taxpayer had "had unreported Schedule C income and expenses (collectively, net profit) attributable to Creation Science Evangelism (CSE) and Dinosaur Adventure Land (DAL) for each of the years at issue; " (ii) that the taxpayer whether petitioner is liable for additions to tax under section 6651(a)(1) for failing to timely file her income tax return for each of the years at issue; and (3) and that the taxpayer is liable for the fraud penalty under section 6663(a) for each of the years at issue.

The following is from the opinion and gives a good introduction (footnotes omitted):\

Mr. Hovind established CSE in 1989. CSE purported to be a nondenominational religious organization that advocated the message of creation science and opposed the theory of evolution. CSE promoted its message through live lectures by Mr. Hovind and Eric Hovind. Mr. Hovind frequently traveled, domestically and internationally, for speaking engagements, and petitioner occasionally accompanied Mr. Hovind on these trips.

The Ministry then somehow developed, with various revenue generating projects.  The Court then continued (some footnotes omitted):