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Guide for Completing Form 8823 - page 29 / 197





29 / 197

Evaluating Evidence

c. Oral testimony need not be accepted without further inquiry. If in doubt, or there are inconsistencies, attempts should be made to verify the facts from another source.

Third Party Evidence

Third party evidence is evidence obtained from someone other than the taxpayer. Credible third party evidence is used when the owner is unable to provide the information or it is necessary to verify information provided by the owner. Information about owners collected from third parties will be verified, to the extent practicable, with the owner before determinations are made using the information provided by third parties.

The state agencies should exercise sound judgment to make reasonable determinations and ensure that there is a basis for each item considered. This may involve considering the extent to which detailed documentation is required, examining all existing documentation, and determining the weight that should be given to oral testimony. All the information needed to definitively resolve an issue will seldom be available; state agencies will need to determine when there is sufficient information, or substantially enough, to make a proper determination of compliance with IRC §42.

State agencies are expected to arrive at definite conclusions based on a balanced and impartial evaluation of all available evidence. The state agencies should employ independent and objective judgment in reaching conclusions and should decide all things on their merit; free from bias and conflicts of interest. Fairness may be demonstrated by:


Making decisions impartially and objectively based on consistent application of procedures and tax law;

  • 2.

    Treating individuals equitably;

  • 3.

    Being open-minded and willing to seek out and consider all relevant

information, including opposing perspectives;

  • 4.

    Voluntarily correcting mistakes and refusing to take advantage of mistakes or ignorance on the part of the owner; and

  • 5.

    Employing open, equitable, and impartial processes for gathering and evaluating information necessary for making decisions.

Factors to consider when evaluating evidence include the following:

  • 1.

    Number and type of noncompliance issues,

  • 2.

    Elements missing from the documentation,

  • 3.

    Reasons why documentation is incomplete,

  • 4.

    Availability of other information to substantiate compliance, and

  • 5.

    Materiality of unsubstantiated documentation.


Revised October 2009

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