Taxpayer's Self-Serving Affidavit Was Sufficient to Defeat Summary Judgment

(Parker Tax Publishing February 2018)

The Eleventh Circuit Court held that self-serving and uncorroborated statements in a taxpayer's affidavit can create an issue of material fact with respect to the correctness of an IRS assessment of taxes and penalties provided the affidavit is made on personal knowledge, sets out facts that would be admissible in court, and the person making the statements is competent to testify. The Eleventh Circuit overruled the portion of Mays v. U.S., 763 F.2d 1295 (11th Cir. 1985) holding that a taxpayer's general and self-serving assertions failed to rebut an assessments' legal presumption of correctness. U.S. v. Stein, 2018 PTC 24 (11th Cir. 2018).

In 2015, the IRS sued Estelle Stein for outstanding tax assessments, late penalties, and interest owed for five previous years. The IRS alleged that Stein owed approximately $220,000 plus fees and additions to tax. In a motion for summary judgment, the IRS submitted copies of Stein's tax returns, transcripts of her accounts, and an affidavit from an IRS officer.

Stein responded with an affidavit of her own stating that, to the best of her recollection, she had paid the taxes and penalties owed for the years at issue. According to the affidavit, Stein had hired an accounting firm to file her returns after the death of her husband, who had been solely responsible for filing the couple's returns and paying taxes. Stein said in her affidavit that although she remembered paying the taxes and penalties, she no longer had bank statements to establish her payments to the IRS and could not obtain the bank statements to prove her payments. She also claimed that the IRS had acknowledged misapplying her tax payment for one year to an earlier year. Stein's affidavit said it was her unwavering contention that she paid the taxes and penalties when she filed her returns for the years at issue.

A district court granted summary judgment in favor of the IRS. According to the district court, the IRS's evidence created a presumption that its assessments were correct. Stein's affidavit, the court said, did not produce any evidence documenting her payments and therefore did not satisfy her burden to overcome the presumption of correctness. As a result, the district court held that there was no genuine issue of material fact and the IRS was entitled to judgment as a matter of law.

Stein appealed to the Eleventh Circuit Court. A panel of the court affirmed the district court's decision and found that Stein's affidavit failed to create a genuine factual dispute about the validity of the IRS's assessments. The Eleventh Circuit then vacated the panel's decision and reconsidered the case en banc.

Under Rule 56(c) of the Federal Rules of Civil Procedure, an affidavit that disputes a material fact precludes summary judgment if the affidavit is made on personal knowledge, sets out facts that would be admissible in evidence, and shows that the person submitting the affidavit is competent to testify in court. However, in Mays v. U.S., 763 F.2d 1295 (11th Cir. 1985), the Eleventh Circuit held that a taxpayer seeking a refund had to substantiate his or her claim by using something other than tax returns, uncorroborated testimony, or self-serving statements. The taxpayer's submissions of printouts showing business expenses and statements of net worth were insufficient to substantiate such claims, and therefore did not overcome the presumption of correctness afforded the IRS's determinations.

The Eleventh Circuit overruled the portion of Mays holding that self-serving and uncorroborated statements in a taxpayer's affidavit cannot create an issue of material fact with respect to the correctness of the IRS's assessments. It held that a nonconclusory affidavit which complies with Rule 56 can create a genuine dispute concerning an issue of material fact even if it is self-serving and/or uncorroborated.

The Eleventh Circuit found that, contrary to Mays, nothing in Rule 56 prohibits an affidavit from being self-serving. In fact, the Eleventh Circuit noted that in many of its decisions, self-serving statements based on personal knowledge or observation were sufficient to defeat summary judgment. The court further found that Mays incorrectly relied on Gibson v. U.S., 360 F.2d 457 (5th Cir. 1966), which, in the view of the Eleventh Circuit, held only that it was not clear error for a fact finder to disregard self-serving and unsupported trial testimony. The Eleventh Circuit reasoned that Gibson did not apply to summary judgment, where the court's function is not to weigh the evidence.

The Eleventh Circuit also rejected the panel's holding that an affidavit must be corroborated by independent evidence. The court pointed out that nothing in Rule 56 requires an otherwise permissible affidavit to be corroborated and it saw no basis for imposing a corroboration requirement. The Eleventh Circuit found that if corroboration is needed, that requirement must come from a source other than Rule 56, such as the substantive law that governs the dispute or the rules of evidence. The determination of whether substantive tax law required Stein to substantiate her tax and penalty payments was left to the panel to decide on remand.

For a discussion of the general rules of assessments, tax see Parker Tax ¶260,110.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com