The Presumption of Correctness
IRS notices receive a “presumption of correctness” for a very good reason: without it, the IRS would lose every time. Here’s why:
By statute the Court operates under the Federal Rules of Evidence for non-jury trials in the District of Columbia. The rules of evidence require that testimony must be from personal, or “first-hand” knowledge. You as the petitioner are the only one involved in this procedure with the required first-hand knowledge. You are the only one who has personal knowledge of your financial affairs.
The IRS has no first-hand knowledge of their “evidence.” The IRS relies on the reports of third parties, which is known in the law as “hearsay.” The government generally also counts on petitioners’ not knowing the rules of evidence or how to use them.
The Rules of Evidence
Information the IRS gathers about you generally comes from third parties (or from you). Third party information is known as hearsay. It is generally not admissible as evidence in a courtroom. Bank records, credit card receipts, and information returns like 1099s and W-2s, are all hearsay, i.e., statements made out of court to prove the truth of something asserted in court. Only testimony from personal knowledge is admissible as evidence. No one at the IRS has personal, first-hand knowledge of your affairs; they only have forms and records provided by third-parties. Hearsay, not evidence. It’s why the IRS needs that presumption of correctness.
On the other hand, your testimony, tax returns, and records are created from your knowledge of your own affairs. Your own records and testimony will also be subject to cross-examination at trial, as all testimony must be to qualify for admission. Properly sworn and presented to the court, your testimony is admissible fact evidence. A thorough understanding of the rules of evidence, in particular the hearsay rules and their exceptions is critical to any Tax Court case.
You Need to Know the FRE
No one will explain the rules to you, and your opponent understands them very well. The Tax Court website simply states that the Federal Rules of Evidence apply in regular cases. It doesn’t emphasize in any way how important it is for petitioners to understand them. Generally your opponent and the court will expect that you do not understand them. In which case, as is the case with 99% of people they encounter without lawyers, you will be dazzled before and during the trial like the local high school hoops team going against the Harlem Globe Trotters. You’ll never know what hit you.
If you are there to argue anything other than the most conventional of disputes over valuations or deductions, you will be put at every disadvantage in representing yourself before this court. You will not prevail on constitutional arguments or direct challenges to the misapplication of the law. Any mention of the Constitution, direct taxes, capitations, indirect taxes, defined terms, or any other issues fundamental to understanding the income tax will be shouted down with the word “frivolous” and suppressed with threats of large fines.
The court and the IRS have been misapplying the law for a long time. There is a mountain of precedent against you. Not to mention that the Tax Court’s jurisdiction to hear such arguments or make decisions concerning IRS misinterpretation of the law is questionable. Tax Court jurisdiction is severely limited.
Nevertheless, I believe that with proper preparation, a good understanding of what is going on, and an ability to keep your head under pressure, you can prevail in Tax Court with an understanding of evidence and procedure, what an attorney friend of mine calls “old fashioned lawyering.”