§534 — Burden of proof
48 cases·22 followed·5 distinguished·3 questioned·1 overruled·17 cited—46% support
Statute Text — 26 U.S.C. §534
In any proceeding before the Tax Court involving a notice of deficiency based in whole or in part on the allegation that all or any part of the earnings and profits have been permitted to accumulate beyond the reasonable needs of the business, the burden of proof with respect to such allegation shall—
if notification has not been sent in accordance with subsection (b), be on the Secretary, or
if the taxpayer has submitted the statement described in subsection (c), be on the Secretary with respect to the grounds set forth in such statement in accordance with the provisions of such subsection.
Before mailing the notice of deficiency referred to in subsection (a), the Secretary may send by certified mail or registered mail a notification informing the taxpayer that the proposed notice of deficiency includes an amount with respect to the accumulated earnings tax imposed by section 531.
Within such time (but not less than 30 days) after the mailing of the notification described in subsection (b) as the Secretary may prescribe by regulations, the taxpayer may submit a statement of the grounds (together with facts sufficient to show the basis thereof) on which the taxpayer relies to establish that all or any part of the earnings and profits have not been permitted to accumulate beyond the reasonable needs of the business.
If pursuant to section 6861(a) a jeopardy assessment is made before the mailing of the notice of deficiency referred to in subsection (a), for purposes of this section such notice of deficiency shall, to the extent that it informs the taxpayer that such deficiency includes the accumulated earnings tax imposed by section 531, constitute the notification described in subsection (b), and in that event the statement described in subsection (c) may be included in the taxpayer’s petition to the Tax Court.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.534-1 Burden of proof as to unreasonable accumulations generally
- Treas. Reg. §Treas. Reg. §1.534-2 Burden of proof as to unreasonable accumulations in cases before the Tax Court
- Treas. Reg. §Treas. Reg. §1.534-2(a) Burden of proof on Commissioner.
- Treas. Reg. §Treas. Reg. §1.534-2(b) Burden of proof on the taxpayer.
- Treas. Reg. §Treas. Reg. §1.534-2(c) Notification to the taxpayer.
- Treas. Reg. §Treas. Reg. §1.534-2(d) Statement by taxpayer.
- Treas. Reg. §Treas. Reg. §1.534-3 Jeopardy assessments in Tax Court cases
48 Citing Cases
Pursuant to section 534, the burden of proof was shifted to respondent to demonstrate that petitioner’s accumulation of earnings and profits for stockholder redemptions of stock and business expansion plans was beyond petitioner’s reasonable needs.
WELLS, Judge: The instant case is before the Court on respondent's motion pursuant to Rule 142(e) to shift the burden of proof to petitioner to the limited extent set forth in section 534 (a) (2) .¹ ¹ Unless otherwise indicated., all section and Code references are to the Internal Revenue Code as in effect for the taxable years before the Court, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Section 534 provides that under certain circumstances the burden of proof with respect to the question whether earnings and profits have accumulated beyond the reasonable needs of the business may be shifted to the Government. The parties have stipulated that petitioner continues to bear the burden of proof. Rule 142(a). Working Capital A corporati
c. v. Commissioner, 54 T.C. 1566, 1574 (1970) (citing Beim Co. v. Landy, 113 F.2d 897, 900 (8th Cir. 1940)). The burden of proof as to whether a corporation constitutes a mere holding company is placed on the corporation and may not be shifted under section 534. See Rule 142(a); H.C. Cockrell Warehouse Corp. v. Commissioner, 71 T.C. 1036, 1045-1046 (1979).5 5 It appears that with certain limitations a shift in the (continued...) - 18 - In Dahlem Found., Inc. v. Commissioner, supra, we concluded
Section 534 lists two situations in which the Commissioner bears the burden of proving that earnings have accumulated beyond the reasonable needs of the business. First, the Commissioner bears the burden of proof when the Commissioner fails to notify the corporation before issuing a notice of deficiency to it that the notice of deficiency includes
In that case we said: [The Commissioner] admits that part of section 534's function is to "encourag[e] the Internal Revenue Service to be more deliberate than it had been in the past." Such deliberation can result only if respondent reads and considers a taxpayer's section 534(c) response before issuing a notice of deficiency, and we are confident that Congress intended for respondent to do just that.