Paul L. Caron

Friday, September 27, 2019

Cauble: Presumptions of Tax Motivation

Emily Cauble (DePaul), Presumptions of Tax Motivation, 105 Iowa L. Rev. ___ (2020):

Rebuttable presumptions are scattered throughout the Internal Revenue Code and the Treasury Regulations. In many cases, they are employed in service of determining a taxpayer’s motive or state of mind. They are not, however, always utilized when motive or state of mind must be assessed. In some contexts, courts are called upon to examine all relevant facts and circumstances in order to divine a taxpayer’s state of mind – which facts are relevant and the weight to be accorded to various facts are not specified ahead of time except to the extent set forth in judicial precedent. At the other extreme, in yet another subset of situations in which tax outcome turns on motive or state of mind, tax law provides that a given fact establishes an irrebuttable presumption of a given motive. In between the two extremes, tax law makes use of a variety of tools including rebuttable presumptions. When a rebuttable presumption is at work, the proof of a specified fact is deemed to establish the existence of a given state of mind, unless the party who is disadvantaged by that state of mind determination presents sufficient evidence to overcome it.

In response to these challenges, several localities recently enacted or proposed taxes targeted directly at large businesses, with revenues allocated explicitly for a designated purpose. Localities are gravitating toward targeted taxes for several reasons. Some assert that the success of large employers within the locality contributed to, or even directly created, these challenges. Perhaps most importantly, targeted tax laws serve a clear expressive function. Depending on the locality’s primary objective, targeted taxes may be problematic and counterproductive.

Despite their prevalence, existing literature contains virtually no discussion of the use of rebuttable presumptions in tax law generally or when used for the purpose of determining motive or state of mind. This Article begins to address the gap in the existing literature and focuses on rebuttable presumptions that guide the assessment of motive or state of mind. It analyzes the purposes that rebuttable presumptions can serve and uses that analysis to craft recommendations for making better use of them. The recommendations include supplementing some facts and circumstances tests with rebuttable presumptions, converting some irrebuttable presumptions into presumptions that are rebuttable in specific ways, and modifying the design of existing rebuttable presumptions to increase the odds of the IRS receiving relevant information and to provide clearer guidance regarding how the presumptions can be rebutted.

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