Higbee v. Commissioner

Earl and Lesley Higbee (plaintiffs) filed a petition against the commissioner (defendant) of the Internal Revenue Service (IRS) with the United States Tax Court. The Higbees contended that they were entitled to deductions for casualty losses and charitable contributions and disputed their liability for additions to tax (i.e., penalties) under Internal Revenue Code (code) § 6651(a)(1) for failing to timely file their 1996 tax return and under code § 6662(a) for substantially understating their 1997 taxes. At trial, the Higbees supported their casualty-loss deduction with a small-claims-court form that bore no official notation or certification, did not indicate when the suit was commenced or completed, and did not appraise property or reliably estimate repair costs. The Higbees supported their contributions deductions with (1) their testimony, (2) documents that appeared to have been created by the Higbees rather than by charities, (3) preprinted forms that the Higbees filled out, and (4) purchase receipts. Per the Higbees, their deduction submissions constituted credible evidence for their positions, which, pursuant to code § 7491(a), shifted the burden of proof to the commissioner. The Higbees further contended that, under code § 7491(c), the commissioner bore the burden of production regarding the Higbees’ penalty liability. The commissioner responded that the Higbees retained the burden of proof regarding deductions because the Higbees did not submit credible supporting evidence and that the commissioner met the burden of production regarding penalties because the commissioner showed that the Higbees filed their 1996 return late and that their 1997 return substantially understated their taxes due to negligence or a disregard for the IRS’s rules or regulations.