On July 15, 2020, the Tax Court issued a Memorandum Opinion in the case of Weiderman v. Commissioner (T.C. Memo. 2020-109). The primary issue before the court in Weiderman was whether the court should permit the reopening of the record to allow the IRS to submit evidence that it complied with the supervisory approval requirements of IRC § 6751(b)(1).
Satisfying Presumption of Correctness of IRS Determination in Cases Involving Unreported Income
For the presumption of correctness of an IRS determination to adhere in cases involving unreported income the IRS must provide “some reasonable foundation connecting the taxpayer with the income-producing activity” or demonstrate that the taxpayer received unreported income. See Weimerskirch v. Commissioner, 596 F.2d 358, 360-361 (9th Cir. 1979) (reasonable foundation), rev’g 67 T.C. 672 (1977); Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999) (receipt), aff’g T.C. Memo. 1997-97.
Once the IRS has done this, the burden of proof shifts to the taxpayer to prove by a preponderance of the evidence that the IRS’s determinations are arbitrary or erroneous. Helvering v. Taylor, 293 U.S. 507, 515 (1935). Similarly, under IRC § 6201(d), if a taxpayer in any court proceeding asserts a reasonable dispute with respect to any item of income reported on an information return, the IRS shall have the burden of producing reasonable and probative information concerning such deficiency, in addition to such information return.
Reopening Record to Introduce Evidence of Supervisory Approval under IRC § 6751(b)(1)
The IRS was unable to direct the Tax Court to any evidence in the record that satisfies its burden of production with respect to IRC § 6751(b)(1), and it filed a motion to reopen the record to offer into evidence (1) the declaration of the supervisor of the individual who made the initial determination of penalties and (2) the Civil Penalty Approval Form for the years at issue dated before the issuance of the notice of deficiency and signed by the supervisor. The petitioners objected to the introduction of any additional evidence with respect to the penalties.
Reopening the record for the submission of additional evidence lies solely within the Court’s discretion. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 331 (1971); Butler v. Commissioner, 114 T.C. 276, 286-287 (2000); see also Nor-Cal Adjusters v. Commissioner, 503 F.2d 359, 363 (9th Cir. 1974), aff’g T.C. Memo. 1971-200. The Tax Court will not grant a motion to reopen the record unless, among other requirements, the evidence relied on is not merely cumulative or impeaching, is material to the issues involved, and probably would change some aspect of the outcome of the case. Butler v. Commissioner, 114 T.C. at 287; see also SEC v. Rogers, 790 F.2d 1450, 1460 (9th Cir. 1986), abrogated on other grounds by Pinter v. Dahl, 486 U.S. 622 (1988).
In reviewing motions to reopen the record, courts have considered when the moving party knew that a fact was disputed, whether the evidentiary issue was foreseeable, and whether the moving party had reason for the failure to produce the evidence earlier. See, e.g., George v. Commissioner, 844 F.2d 225, 229-230 (5th Cir. 1988), aff’g Frink v. Commissioner, T.C. Memo. 1984-669. The Tax Court balances the moving party’s diligence against the possible prejudice to the nonmoving party. In particular the Tax Court considers whether reopening the record after trial would prevent the nonmoving party from examining and questioning the evidence as it would have during the proceeding. See, e.g., Estate of Freedman v. Commissioner, T.C. Memo. 2007-61; Megibow v. Commissioner, T.C. Memo. 2004-41.
The evidence that is the subject of the IRS’s motion would not be cumulative of any evidence in the record and would not be impeaching material. The IRS bears the burden of production with respect to penalties and would offer the evidence as proof that the requirements of IRC § 6751(b)(1) have been met. The subject evidence is material to the issue of the penalties here, and the outcome of that issue will be changed if the Tax Court grants respondent’s motion. Petitioners contend that the IRS had ample time to provide the documents prior to trial and refused to do so.
Critically, however, when this case was submitted and the record closed, the Tax Court had not issued opinions in its most substantial cases involving IRC § 6751(b). See Graev v. Commissioner, 149 T.C. 485, 492-93 (2017), supplementing and overruling in part Graev v. Commissioner, 147 T.C. 460 (2016); see also Clay v. Commissioner, 152 T.C. 223, 248 (2019); Belair Woods, LLC v. Commissioner, 154 T.C. No. 1, *24-*25 (Jan. 6, 2020).
Although the Tax Court ultimately permitted the reopening of the record, the result may not have been the same if the record had been closed subsequent to the publication of Graev, Clay, Belair Woods, and others that have come out in 2020.Add to favorites