If a taxpayer first introduces credible evidence into an audit with the IRS, the burden of proof will shift away from them and onto the IRS. This credible evidence must be in respect to factual issues relevant to ascertaining the taxpayer’s tax liability.
Audit Credible Evidence Requirement
Credible evidence is the quality of evidence which, after critical analysis, the court would find sufficient upon which the base a decision on the issue if no contrary evidence were submitted. This means that the evidence must be convincing and without any contrary objection from the IRS that the proof is without merit.
Credibility is Subjective
Credible evidence is considered very subjective because it is open to interpretation, involving both the demeanor of the witness and the underlying facts. For the IRS to consider evidence credible, it must be believable. The taxpayer cannot simply submit evidence that no one would believe.
A taxpayer is not considered to have produced credible evidence if the taxpayer merely makes implausible factual assertions, frivolous claims, or tax protestor type arguments. The IRS will also not tolerate evidence that is without merit and used to delay an audit or investigation.
The Tax Court has made it clear that evidence that has been presented by witnesses that is self serving, improper, improbable, or not corroborated is not credible evidence that would be considered by the IRS. This type of evidence would simply be disregarded by the IRS and Tax Court.
Interviewing the Taxpayer
In cases where there is little written evidence, it may be an advantage of the taxpayer to interview during an audit to provide credible testimony as a witness. In some cases, this testimony can convince the IRS agent to not pursue an issue that seems out of reach given the taxpayers oral evidence.