The U.S. Tax Court recently addressed whether the burden of production imposed upon the Service under section 7491(c) of the Code, with regard to additions to tax, applies when the pleadings fail to state a claim for relief. In Funk v. Commissioner, the court held that because the petition failed to claim relief from an addition to tax, the Service was not required to produce evidence in support of the addition, and the taxpayer was deemed to have conceded the penalties. Although the Tax Court’s holding in Funk is correct, by failing to inquire into whether the Service had met its burden of production required by section 7491(c), the court has opened the door to suggestions that a conflict exists between section 7491(c) and Tax Court Rule 34(b). No such conflict exists. The court’s holding is consistent with both the Code, which provides that the Service has the burden of production with respect to any deficiency or addition to tax, and Rule34(b), which provides content requirements for pleadings that challenge assessments of liability or deficiency. However, in failing to evaluate the appropriateness of the Service’s claims, the Funk decision implicitly creates a conflict between the aforementioned provisions.
This Note argues that in failing to address whether the Service met its burden of production, the court failed to give force to the substantive protection inherent in section 7491(c). The court would have reached the same result in Funk had it adhered to the language of section 7491(c) and engaged in a cursory analysis of the Service’s proffered justifications for its claims. By going further in its analysis, the court could have given credence to the congressional purpose of section7491(c) without compromising the procedural goals of Rule 34. Part I of this Note presents the factual background of the Funk decision. Part II considers the relevant statutory provision and Tax Court Rule at issue in Funk. Part III analyzes the Tax Court’s decision in light of the Code and its legislative history and precedent. Part IV concludes that the court erred by not applying section 7491 of the Code and its substantive guarantee despite the taxpayer’s failure to conform to Rule 34(b).