Tax Return Preparer Penalties

A recent District Court decision was reported dealing with Tax Return Preparer Penalties.  J. Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator with locations in North Myrtle Beach and Myrtle Beach, SC & Raleigh and Wilmington, NC works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for clients. J. Frank Best is rated in the Top 5 Tax Controversy CPA Profiles/Linkedin.

Tax Return Preparer Penalties

In Taylor v. Comm’r, 2018 PTC 236 (9th Cir. 2018), the Ninth Circuit affirmed a district court’s dismissal for lack of jurisdiction of an action by a tax return preparer seeking an abatement of Tax Return Preparer Penalties after rejecting the taxpayer’s argument that an exception in Code Sec. 6694(c) relieved him of his obligation to pay the penalties in full before bringing a refund suit in the district court. The court noted that, while Code Sec. 6694(c) confers district court jurisdiction when a tax return preparer has paid at least 15 percent of a penalty if the refund action is begun within 30 days after the earlier of the IRS’s denial of the refund claim or the expiration of six months after the day on which the refund claim is filed, the taxpayer did not file within those time limits and thus was not eligible to bring suit in the district court for Tax Return Preparer Penalties.

No Tax Court Jurisdiction Over Employment Tax Liability

A recent Tax Court decision was reported dealing with Tax Court Jurisdiction. J. Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator with locations in Raleigh and Wilmington, NC  & North Myrtle Beach and Myrtle Beach, SC works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for clients

No jurisdiction was determined by the Eighth Circuit and the Eight Circuit affirmed the dismissal of an S corporation’s Tax Court petition challenging an IRS determination that the compensation paid to the sole owner and officer of the S corporation was unreasonable. The Eighth Circuit found that there was no actual controversy under Code Sec. 7436 as to the determination of the S corporation shareholder’s employment status for Federal Insurance Contribution Act (FICA) tax purposes and thus Code Sec. 7436 did not come into play. Azarian v. Comm’r, 2018 PTC 229 (8th Cir. 2018).

Under Code Sec. 7436(a)(1), the Tax Court has jurisdiction over a petition if there is an actual controversy involving a determination that an individual performing services is an employee for FICA tax purposes. Thus, the issue was whether there was an actual controversy involving a determination that Azarian was an employee for FICA tax purposes.

The Eighth Circuit affirmed the Tax Court’s dismissal for lack of jurisdiction. The Eighth Circuit found that even if there was an actual controversy, it did not involve a determination that Azarian was an employee for FICA tax purposes as required under Code Sec. 7436(a)(1). The court determined that by reporting wages to Azarian each year, the S corporation claimed Azarian was an employee, so the IRS did not make a determination on that issue. Instead, the IRS relied on the S corporation’s classification.

Settlement Proceeds Taxable: Tax Controversy CPA/U. S. Tax Court Litigator

A recent Tax Court decision was reported dealing with Settlement Proceeds.  J. Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator with locations in Raleigh and Wilmington, NC  & North Myrtle Beach and Myrtle Beach, SC works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for clients.

Discrimination and Hostile Work Environment Settlement Is Taxable: In Zinger v. Comm’r, T.C. Summary 2018-33, the Tax Court held that the $20,000 from Settlement Proceeds received by the taxpayer was not excludable from income under Code Sec. 104(a)(2). The court concluded that the settlement payment was for the resolution and withdrawal of the taxpayer’s discrimination and hostile work environment claims and not on account of personal physical injuries or physical sickness.

IRS Disallows Dependents. Can We Assist You? Raleigh, Wilmington-N. Myrtle Beach, Myrtle Beach

A recent Tax Court decision was reported dealing with Dependents.  J. Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator with locations in Raleigh and Wilmington, NC  & North Myrtle Beach and Myrtle Beach, SC works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Parents Who Lost Custody of Children Could Not Claim Them as Dependents or Take Child Tax Credit or EITC

The Tax Court held that the biological parents of two dependent children who were adopted by, resided with and received primary financial support from their maternal aunt during the entire year at issue were not entitled to claim the children as dependents and, as a result, could not take the child tax credit or the earned income credit. The Tax Court reasoned that, although the children visited with their parents when not in school, the children did not share a principal place of abode with their parents, making the parents ineligible to claim the children as dependents or take the credits. Jusino v. Comm’r, T.C. Memo 2018-112.

Restitution Payment- J. Frank Best, Tax Controversy CPA/U.S. Tax Court Litigator

Restitution Payments

A recent Tax Court decision was reported dealing with Restitution Payments as Part of a Criminal Sentence.  J.  Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator in Raleigh and Wilmington, NC  & North Myrtle Beach and Myrtle Beach, SC works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

The Tax Court held that a taxpayer was not entitled to a miscellaneous itemized deduction for a $400,000 restitution payment made in 2014. The court concluded that (1) the taxpayer did not show that the restitution payment promoted or protected his trade or business of being an employee; (2) the taxpayer did not present any evidence that the primary purpose or motive for the payment was other than that he was required to make the payment as part of a criminal sentence; and (3) the taxpayer did not enter into the restitution transaction with the intention of making a profit. Washburn v. Comm’r, T.C. Memo. 2018-110.

Conclusion

The Tax Court held that Washburn could not deduct the restitution payments as a miscellaneous itemized deduction in 2014. The court began by noting that the restitution payments would be deductible as a miscellaneous itemized deduction if they constituted expenses attributable to the performance of services as an employee under Code Sec. 162(a), losses related to the performance of services as an employee under Code Sec. 165(c)(1), or losses incurred in a transaction entered into for profit under Code Sec. 165(c)(2).

“Serious IRS Problem Resolution”/J. Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator

Serious IRS Problem Resolutions

J. Frank Best is rated in the Top 5 Tax Controversy CPA Profiles/Linkedin and is a United States Tax Court Litigator licensed in all States and works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Telephone 800.230.7090   Email: bestcpa@bestirscpa.com  Web: bestirscpa.com

Business Expenses-J. Frank Best, Tax Controversy CPA/U.S. Tax Court Litigator

A recent Tax Court decision was reported dealing with Business Expenses.  J.  Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator in Raleigh and Wilmington, NC  & North Myrtle Beach and Myrtle Beach, SC works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients. 

Couple Can’t Deduct Entire Grocery Bill for Household That Includes Foster Individuals: In Kho v. Comm’r, T.C. Summary 2018-32, the Tax Court denied a couple a deduction for total grocery expenses as business expense where they provided foster care for two men with developmental disabilities, one of which required a gluten-free diet. The court noted that any excess cost to the couple in providing gluten-free meals to their client had already been accounted for in the amount that the IRS allowed as a deductible expense for groceries and that the couple could not deduct their entire grocery bill as  business expenses because such costs were personal expenses.

The Tax Court also concluded that petitioners are liable for the penalty imposed under section 6662(a) with respect to the portions of the underpayments attributable to the adjustments that were sustained in this case.

IRS FRIVOLOUS ARGUMENT PENALTY-RALEIGH & WILMINGTON, NC NORTH MYRTLE BEACH & MYRTLE BEACH, SC

A recent Tax Court decision was reported dealing with Frivolous Arguments’ Penalty.  J.  Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator in Raleigh and Wilmington, NC  & North Myrtle Beach and Myrtle Beach, SC works to stay current on all IRS decisions concerning tax litigation to ensure we are fully Informed and prepared for our clients.

J. Frank Best, Tax Controversy CPA is rated in the top 5 Tax Controversy CPA/Profiles Linkedin https://www.linkedin.com/title/tax-controversy-cpa

EMAIL: bestcpa@bestirscpa.com

PHONE: 1-800-230-7090

IRS Frivolous Arguments’ Penalty/J. Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator

A recent Tax Court decision was reported dealing with Frivolous Arguments’ Penalty.  J.  Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator in Raleigh and Wilmington, NC  & North Myrtle Beach and Myrtle Beach, SC works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients. 

IRS Supervisor Approval Not Required for Tax Court to Assess Frivolous Arguments’ Penalty

The Tax Court held that its authority to impose a frivolous argument penalty under Code Sec. 6673 for making a frivolous argument before the Tax Court is not subject to the IRS supervisor approval requirement in Code Sec. 6751(b)(1). The Tax Court found that (1) Congress’s intent in enacting the supervisor approval requirement was to prevent IRS agents from threatening unjustified penalties to encourage taxpayers to settle, while Code Sec. 6673 is designed to deter bad behavior in the Tax Court and conserve judicial resources, and (2) Code Sec. 6751(b)(1) was clearly not intended as a mechanism to restrain the Tax Court. Williams v. Comm’r, 151 T.C. No. 1 (2018).

The Tax Court concluded that Code Sec. 6751(b)(1) was not intended as a broad restraint mechanism on the federal judiciary. In the court’s view, Congress did not intend for the statute to cover the imposition of penalties that could be imposed by courts because of misbehavior by a litigant during the course of a judicial proceeding.

Innocent Spouse Relief/J. Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator

A recent Tax Court decision was reported dealing with Innocent Spouse Relief.  J.  Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator in Raleigh and Wilmington, NC  & North Myrtle Beach and Myrtle Beach, SC works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.  

No Innocent Spouse Relief for Widow Who Failed to Report Insurance Proceeds on Form 8857

The Tax Court held that a widow was not entitled to innocent spouse relief from tax liabilities that arose over several years in which she and her husband filed joint returns but did not pay taxes owed. The court cited the fact that, after her husband’s death, the widow invested the proceeds of life insurance policies purchased by her husband without her knowledge in several savings accounts opened in her parents’ names and did not report the proceeds to the IRS when she requested relief. Hale v. Comm’r, T.C. Memo. 2018-93.

Analysis

Spouses filing joint tax returns are generally jointly and severally liable for any taxes owed. However, Code Sec. 6015(f) allows a spouse to be relived from liability if it would be inequitable to hold the spouse liable.

Rev. Proc. 2013-34 lists seven factors to consider if certain threshold conditions do not apply. The factors are: (1) whether the couple is still married, (2) whether economic hardship would arise if relief is not granted, (3) whether the requesting spouse had reason to know that the taxes would not be paid, (4) whether either spouse had a legal obligation to pay the taxes, (5) whether the requesting spouse significantly benefitted from the unpaid taxes, (6) whether the requesting spouse made a good faith effort to comply with the income tax laws in subsequent years, and (7) whether the requesting spouse was in poor health at the time the returns were filed.

The Tax Court held that it would not be inequitable to deny relief to Mrs. Hale. The court explained that a simple toting up of the seven factors would support granting relief, because Mrs. Hale’s lack of knowledge and mental health weighed in her favor and strictly applied, no factor weighed against relief. However, the court noted that the factors are nonexclusive, the degree of importance of each factor varies depending on the facts and circumstances, and that the court was not bound by the IRS’s published guidelines.