Burden of Proof:  Exclusion v. Exemption

ADAPTED FROM: Excluded Earnings and People, Form #14.019, Section 2; https://sedm.org/Forms/14-PropProtection/ExcludedEarningsAndPeople.pdf

This site focuses exclusively on Exclusions rather than Exemptions. The difference between these two is explained in:

Proof of Facts: Exemptions v. Exclusions, FTSIG
https://ftsig.org/proof-of-facts-exemptions-v-exclusions/

Pursuing exclusions rather than exemptions shifts the burden of proof onto the government and takes it off of you, as demonstrated below:

“We discussed the issue of appropriate burdens of proof in Ragland v. Meadowbrook Country Club, 300 Ark. 164, 777 S.W.2d. 852 (1989). In Ragland, the DFA argued that it was the taxpayer’s burden to prove entitlement to a statutory exemption. Id. We noted that the taxpayer in that case was not claiming entitlement to an exemption, but instead was claiming an exclusion from coverage.  Id. We explained the difference in the two taxing concepts, and noted that “a different burden of proof at the administrative and trial levels is required when an exemption or exclusion is at issue.” We noted that:

HN18 the taxpayer claiming an exemption shoulders the burden of establishing his claim. By the [***20]  same logic, it follows that the agency claiming the right to collect a tax bears the burden of proving that the tax law applies to the item sought to be taxed.

Ragland, supra. Applying this rule to the case at hand, we hold that the trial court properly placed the burden on justifying the imposition of a tax upon intercorporate dividends that were excluded from taxation on the DFA. The facts in the case now on review are on all fours with those in Ragland. Specifically, the appellees in this case were not claiming an exemption from taxation they were instead claiming an exclusion from the consolidated group’s gross income of  [*725]  dividends paid to the Holding Company by First National. Therefore, it became DFA’s burden to prove that appellees were not eligible to file, or improperly filed, a consolidated tax return that did not include the intercorporate dividends within the affiliated group. DFA did not meet this burden of proof. Accordingly, we affirm the trial court.”

[Barclay v. First Paris Holding Co, 344 Ark. 711 (2001)]

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“The appellant argues that the appellee did not prove entitlement to an exemption from the Gross Receipts Act. However, the appellee was not claiming an exemption; rather, it  [*168]  was claiming exclusion from coverage. The difference between an exemption and exclusion is that an exemption pertains to sales that would be covered were they not specifically exempted from the Act, while exclusion is simply not included in the first place. A different burden of proof at the administrative and trial levels is required when an exemption or exclusion is at issue.

[5, 6] We have many times held that the taxpayer claiming an exemption shoulders the burden of establishing his claim. By the same logic, it follows that the agency claiming the right to collect a tax bears the burden of proving that the tax law applies to the item sought to be taxed.”

[Ragland v. Meadowbrook Country Club, 300 Ark. 164 (1989)]

This is the Supreme Court of Arkansas saying that the burden of proof is on the AGENCY to prove the tax law applies to your wages/salary. You have to make that BURDEN OF PROOF clear and not allow them to pretend the burden is on you to prove a negative, which is that “wages” are NOT “income”. You have not claimed a deduction or statutory exemption, so the burden is on THEM. Yes you have the burden of showing error in their proposed assessment but this IS the error—from what you have said, they have no basis in fact or law for treating your wages/salary as income derived from salary or wages. Their proposed assessment is therefore arbitrary and capricious. Attack THEIR position—what have they done in the way of PROVING your wages are gross income?