United States Tax Court Decision for the Week-Interest and Penalties on Criminal Restitution Award

A recent Tax Court decision was reported potentially dealing with tax litigation and interest and penalties added to a Criminal Restitution Award. J. Frank Best, Certified Public Accountant and United States Tax Court Litigator works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

IRS Cannot Add Interest and Penalties to Criminal Restitution Award

The Tax Court, in a case of first impression, held that the IRS may not assess and collect interest and penalties on a restitution award in a criminal conviction for failure to pay tax. The Tax Court found that restitution is treated as if it were a tax, but only for the limited purpose of allowing the IRS to create an account receivable against which the restitution can be credited. Klein v. Comm’r, 149 T.C. (2017).

Zipora and Samuel Klein, a married couple, pleaded guilty to willfully filing a false federal income tax return for 2006. Each was sentenced to prison and the couple was jointly ordered to pay restitution to the IRS. Mr. Klein admitted in his plea agreement that he had underreported income on the couple’s joint returns for 2003-2006. For sentencing purposes, the government presented a tax loss calculation of approximately $560,000 based on a reconstruction of the Kleins’ income for 2003-2006. The sentencing court disregarded the Kleins’ objections that the calculation did not include any deductions other than those reported on the returns filed for those years. U.S. sentencing guidelines permit the tax loss amount to be uncertain, and the sentencing court may make a reasonable estimate based on the available facts.

Pursuant to their plea agreements, the Kleins signed an IRS closing agreement acknowledging that their overall tax liabilities for 2003-2006 remained indeterminate. The Kleins waived all defenses, including the statute of limitations, and agreed that the IRS could audit their 2003-2006 returns at any time. Six years later, the IRS had not completed or even begun a civil examination for the Kleins’ 2003-2006 tax years.

In 2014, Mrs. Klein was released from custody and paid to the IRS the restitution amount in full. The government then released a previously filed notice of lien against her, stating that she had satisfied her payment obligations with respect to the restitution, together with all statutory additions. Two months later, the IRS filed a notice of federal tax lien (NFTL) against the Kleins, seeking interest and penalties for failure to pay with respect to the restitution amount. The IRS treated the tax loss amount as the underpayment for each year and used the original due dates of the returns as the commencement date for calculating interest.

The Kleins requested a collection due process hearing seeking withdrawal of the NFTL because they had paid the restitution. A settlement officer noted that the restitution portion of the assessment had been paid but that the assessed interest and penalties had not. The Kleins did not propose a collection alternative and the IRS issued notices of determination sustaining the NFTL filings. The notice showed a total balance due of almost $360,000, consisting entirely of assessed interest and penalties calculated on the amount of the restitution. The Kleins challenged the notice in the Tax Court.

Interest applies to any unpaid tax under Code Sec. 6601, and a penalty applies under Code Sec. 6651(a)(3) for the failure to pay the tax required to be shown on a return. Under Code Sec. 6201(a)(4), the IRS may assess and collect a criminal restitution award for failure to pay any tax in the same manner “as if” the amount were such a tax. The IRS acknowledged that restitution is not literally a tax, but argued that there was no meaningful difference between an amount that is assessed and collected as if it were a tax and an amount that is assessed and collected as a tax.

According to the IRS, interest and penalties are an inevitable adjunct of the civil tax collection procedure authorized by Code Sec. 6201(a)(4). The IRS cited language in the Internal Revenue Manual (IRM) stating that, because criminal restitution is assessed and collected the same as any civil tax assessment, interest and failure to pay penalties would apply as they would for any other civil tax assessment. It also drew a negative inference from Code Sec. 6305(a), which authorizes the IRS to assess and collect delinquent spousal support as if it were a tax. The wording of Code Sec. 6305(a) is similar to Code Sec. 6201(a)(4), but explicitly provides that no interest or penalties can be assessed or collected. The IRS argued that Congress could have included the same limiting language in Code Sec.6201(a)(4) if it had intended such treatment to apply.

The Tax Court held that Code Sec. 6201(a)(4) does not authorize the IRS to add underpayment interest or failure-to-pay penalties to a title 18 restitution award, and the IRS cannot assess or collect from the Kleins underpayment interest or additions to tax without first determining their civil tax liabilities. The court reasoned that the purpose of the “as if” language in Code Sec. 6201(a)(4) is to treat restitution as a tax only for the limited purpose of enabling the IRS to assess the amount in order to create an account receivable against which the restitution payment can be credited. According to the Tax Court, the inclusion of the word “if” in Code Sec 6201 was significant and had to be given effect.

Reviewing the legislative history, the Tax Court determined that Congress’s intent was to address the IRS’s lack of a proper accounting mechanism to credit receipts of restitution payments by giving the IRS early assessment authority for such awards. The Tax Court noted that the IRS usually waits until after a criminal proceeding to begin an audit to determine the taxpayer’s civil liabilities, so the timing created a bookkeeping issue for the IRS. Although the legislative history included a legislator’s floor speech expressing the belief that the bill would permit the assessment and collection of restitution awards for victims of crime in the same manner as delinquent taxes are assessed and collected, the Tax Court found that contemporaneous remarks of a sponsor of legislation are not controlling in analyzing legislative history.

The Tax Court rejected the IRS’s reliance on the IRM, finding the relevant IRM provisions to be short on analysis. The Tax Court noted that IRM provisions do not bind the courts and reasoned that the deference due to an agency manual depends on its thoroughness, logic and expertness. According to the Tax Court, on a question of statutory construction, the IRM would have limited power to persuade in any event and especially given its lack of analysis on this issue.

The Tax Court also disagreed with the IRS’s conclusion that Code Sec. 6305(a) proved Congress knew how to draft limiting language and would have done so in Code Sec. 6201(a)(4) if it intended to limit assessments of interest and penalties on restitution awards. The Tax Court reasoned that such an inference is strongest when the provisions were considered simultaneously and that there was no reason to believe that the Congress that enacted Code Sec. 6201(a)(4)35 years after Code Sec. 6305(a)(4) considered, but decided against, providing such an exclusion in Code Sec. 6201(a)(4).

The Tax Court noted that the differences between a tax loss calculation in a criminal tax case and civil tax liability supported its conclusion. According to the Tax Court, restitution is designed to compensate the IRS for the loss caused by the wrongdoing, while civil tax liability is typically determined after the criminal proceeding. The civil tax liability may be higher or lower than the tax loss that formed the basis of the restitution award. To the Tax Court, this showed the basic flaw in the IRS’s argument that a restitution award should be equated with a tax. A tax loss calculation is a simplified calculation intended to avoid complex disputes over adjustments and deductions during sentencing, where the yardstick for measuring tax loss is typically not understated taxable income but underreported gross income. By contrast, unclaimed deductions for legitimate expenses are fully available to the taxpayer in determining civil tax liability in an IRS audit. To the Tax Court, the difference between a restitution award and civil tax liability showed why restitution could not be equated to a tax.

The Tax Court concluded that a restitution obligation is not a civil tax liability and that Congress did not change that fact when it authorized the IRS to assess and collect restitution in the same manner as if it were a tax. According to the Tax Court, the Kleins had waived all defenses so the IRS was free to begin an audit of their civil tax liabilities, to which interest and penalties could be imposed; in that event, the interest and penalties would be determined by reference not to the tax loss calculation but to the Kleins’ actual tax liabilities.

United States Tax Court Decision for the Week and Filing Status

A recent Tax Court decision was reported potentially dealing with tax litigation and filing status of Joint v. Separate returns. J. Frank Best, Certified Public Accountant and United States Tax Court Litigator works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Taxpayer Can File Joint Return After Original Return Erroneously Reported Single Status

The Tax Court held that a return that a taxpayer originally filed, erroneously claiming single status, did not constitute a “separate return” within the meaning of Code Sec. 6013(b) and, thus, the taxpayer and his wife were entitled to file a joint return and pay joint return tax rates for the year at issue. The Tax Court concluded that the term “separate return” means a return on which a married taxpayer has claimed the permissible status of married filing separately, rather than a return on which a married taxpayer has claimed a filing status not properly available to him or her. Camara v. Comm’r, 149 T.C. No. 13 (2017).

Facts

Fansu Camara was married to Aminata Jatta. Nevertheless, on his 2012 Form 1040, which he filed on April 15, 2013, Mr. Camara erroneously checked the box for single filing status. In a notice of deficiency issued to Mr. Camara for his 2012 tax year, the IRS changed his filing status from single to married filing separately. On May 8, 2015, Mr. Camara and Ms. Jatta timely petitioned the Tax Court with respect to that notice of deficiency as well as a notice of deficiency that the IRS issued to them for their 2013 tax year. On May 27, 2016, Mr. Camara and Ms. Jatta filed with the IRS a joint 2012 return, which they had both signed. Ms. Jatta had not previously filed a 2012 return.

The couple and the IRS agreed that if Mr. Camara and Ms. Jatta were entitled to elect joint filing status for 2012, the joint return that they filed on May 27, 2016 – after receiving the notice of deficiency and petitioning the Tax Court – correctly reflected their 2012 tax liability with certain agreed-upon changes. And the IRS conceded that Mr. Camara and Ms. Jatta met the substantive requirements for joint filing status and rates for 2012. However, the IRS contended that Code Sec. 6013(b)(2) barred Mr. Camara and Ms. Jatta from filing a joint return, and consequently, they were procedurally barred from claiming the benefits generally available to married taxpayers who file a joint return.

Code Sec. 6013 governs whether a married couple may file a joint return. Under Code Sec. 6013(a), a married couple can “make a single return jointly of income taxes” subject to three restrictions, which are not applicable in this case. Code Sec. 6013(b) permits married taxpayers to elect in certain circumstances to switch from a separate return to a joint return. Code Sec. 6013(b)(1) provides that if an individual has filed a “separate return” for a tax year for which that individual and his or her spouse could have filed a joint return, that individual and his or her spouse may nevertheless “make a joint return” for that year. Because the Code Sec. 6013(b) election applies only where an individual has filed a separate return, limitation under Code Sec. 6013(b)(2) likewise apply only if the individual has filed a separate return. The term “separate return” in Code Sec. 6013(b)(1) is not defined in the Code or the regulations.

IRS Arguments

The IRS argued that Mr. Camara’s original 2012 return, on which he erroneously claimed single filing status, constituted a “separate return” within the meaning of Code Sec. 6013(b)(1) and, consequently, two limitations under Code Sec. 6013(b)(2) applied to prevent Mr. Camara from making the Code Sec. 6013(b) election to switch to a joint return. The two limitations that the IRS invoked were in Code Sec. 6013(b)(2)(A) and Code Sec. 6013(b)(2)(B). The first limitation bars the Code Sec. 6013(b) election after three years from the filing deadline (without extensions) for filing the return for that year. The second limitation bars the Code Sec. 6013(b) election after there has been mailed to either spouse, with respect to such tax year, a notice of deficiency, if the spouse, as to such notice, files a petition with the Tax Court within 90 days.

According to the IRS, the two limitations were satisfied because: (1) the date on which Mr. Camara and Ms. Jatta filed a joint return – May 27, 2016 – was more than three years after Mr. Camara filed a separate return; and (2) Mr. Camara received a notice of deficiency, and filed a petition with the Tax Court before filing a joint return.

The IRS also cited the Sixth Circuit’s decision in Morgan v. Comm’r, 807 F.2d 81 (6th Cir. 1986), aff’g T.C. Memo. 1984-384, as compelling a decision in its favor. Morgan involved married taxpayers who filed “protest returns” claiming married filing jointly status for some years and married filing separately status for other years. Affirming the Tax Court, the Sixth Circuit in Morgan held that Code Sec. 6013(b)(2) precluded the husband from claiming the benefits of joint return filing status after the IRS issued a notice of deficiency calculating his tax on the basis of married filing separately.

Tax Court Holding

The Tax Court held that the 2012 return that Mr. Camera originally filed, erroneously claiming single status, did not constitute a “separate return” within the meaning of Code Sec. 6013(b). Thus, Mr. Camera and his wife were entitled to file a joint return and pay joint return tax rates for that year.

The Tax Court began its analysis by noting that the issue raised by the IRS has not been formally addressed by the Tax Court in a reported or reviewed opinion. The court also noted that no Court of Appeals has held that a single return or a head of household return is a separate return for the purposes of Code Sec. 6013(b) and the two Appeals Court cases that have considered this issue, Ibrahim v. Comm’r, 788 F.3d 834 (8th Cir. 2015) and Glaze v. Comm’r, 641 F.2d 339 (5th Cir. 1981), have held the opposite. The court also observed that some Memorandum Opinions had interpreted “separate return” to include a single return or a head of household return for this purpose. For the most part, however, those Memorandum Opinions merely accepted the rationale of earlier cases, and the ultimate authority for those Memorandum Opinions appeared to be traceable to earlier cases where the effect of an erroneous claim of filing status was neither addressed nor even presented as an issue.

The Tax Court noted that its decision in the instant case would be appealable to the Sixth Circuit. However, the court rejected the IRS’s argument that the Sixth Circuit’s holding in Morgan compelled it to rule in the IRS’s favor. Morgan, the court said, did not squarely address the issue presented in the instant case because Morgan did not explain the effect under Code Sec. 6013(b) of a married taxpayer’s initial filings of a return erroneously claiming single status.

The court did find, however, that the Fifth Circuit, in Glaze, squarely addressed the issue. In Glaze, the Fifth Circuit held that filing a return with an erroneous claim to an impermissible filing status (i.e., a filing status of single when the taxpayer was married) did not constitute an “election” to file a separate return. The Fifth Circuit in Morgan, the court observed, distinguished Glaze on the grounds that Glaze involved no protest return and the taxpayer had not attempted to file a return as a married taxpayer originally. The Tax Court found that Mr. Camara’s case was distinguishable from Morgan on the same grounds on which Glaze was distinguished in Morgan. Mr. Camara neither filed a protest return nor attempted to file a return as a married taxpayer originally.

Considering the context of Code Sec. 6013(b) as a whole and giving due regard to the Fifth Circuit’s opinion in Glaze, as well as an Eight Circuit’s opinion in Ibrahim, the Tax Court concluded that the term “separate return” means a return on which a married taxpayer has claimed the permissible status of married filing separately, rather than a return on which a married taxpayer has claimed a filing status not properly available to him or her.

Finally, the court also noted that the legislative history showed that Code Sec. 6013(b)(1) was intended only to provide taxpayers flexibility in switching from a proper initial election to file a separate return to an election to file a joint return; it was not intended to foreclose correction of an erroneous initial retur

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United States Tax Court Decision for the Week and Gambling Winnings

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation and gambling winnings and standard deduction v. itemized deductions. J. Frank Best, Certified Public Accountant and United States Tax Court Litigator works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Taxpayers Who Elected Standard Deduction Can’t Deduct Gambling Losses

The Tax Court held that a couple was taxable on gambling winnings shown on their Form W-2G and, because the couple could not substantiate how much was spent in producing the winnings, no reduction was allowed. The court also found that the couple’s election to take the standard deduction precluded them from taking an itemized deduction for their gambling losses. Viso v. Comm’r, T.C. Memo. 2017-154.

During 2013, William Viso engaged in a variety of recreational gambling activities: he bet on college and professional sports, played slot machines, and bought lottery tickets. That year, he won $5,060 on slot machines at three different casinos. The gambling winnings were reported on Forms W-2G, Certain Gambling Winnings. That same year, Viso and his wife sustained approximately $7,000 in gambling losses.

On their joint Form 1040, the Visos did not report any gambling winnings or losses for the 2013 tax year. They claimed a standard deduction of $12,200. The IRS assessed a tax deficiency after including the $5,060 of gambling winnings in the couple’s 2013 income.

The Visos did not challenge the accuracy of the gross gambling winnings included in their income; instead they argued that those amounts should be reduced by the amounts of bets they placed to produce their winnings. Although the couple introduced evidence of losses at another casino (in addition to lottery tickets and sporting bets), they produced no evidence as to how much William bet to produce the winnings reflected on the Forms W-2G.

For tax purposes, gambling losses are treated in one of two ways. Taxpayers engaged in the trade or business of gambling may deduct their gambling losses against their gambling winnings “above the line” as a trade or business expense in arriving at adjusted gross income. In the case of taxpayers not engaged in the trade or business of gambling, gambling losses are allowable as an itemized deduction, but only to the extent of gambling winnings.

The Tax Court held that the couple’s election to take the standard deduction precluded them from taking an itemized deduction for their gambling losses. In addition, because they could not substantiate how much was spent in producing the winnings reflected on Forms W-2G, no reduction was allowed. In reaching its conclusion, the court cited Torpie v. Comm’r, T.C. Memo. 2000-168 which held that, in order to claim any Schedule A itemized deductions, a taxpayer must forgo the standard deduction.

The Tax Court noted that the couple’s standard deduction of $12,200 exceeded their potential itemized deduction for gambling losses of $5,060. Thus, the court said, the couple’s election to take the standard deduction resulted in a larger deduction than if they had taken an itemized deduction for their gambling losses. Since the couple elected to take the standard deduction, the court held they could not take an itemized deduction for their gambling losses to offset their gambling winnings.

United States Tax Court Decision for the Week – You be the Judge

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, as a litigator, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Wharton M.B.A. Expenses Deducible as Unreimbursed Employee Expenses

The Tax Court held that a taxpayer could deduct the cost of a Wharton M.B.A. degree as an unreimbursed employee expense because his studies improved on preexisting skills and did not, as the IRS argued, qualify him for a new trade or business. Thus, the taxpayer could deduct the education expenses as miscellaneous itemized deductions on Schedule A, Itemized Deductions, to the extent the expenses exceeded 2 percent of his adjusted gross income. Long v. Comm’r, T.C. Summary 2016-88.

Background

From March 2005 to May 2011, Tao Long worked for Broadcom Corp., a semiconductor company in Silicon Valley that makes computer chips. He started as a design engineer and was promoted to the positions of product marketing manager, senior product marketing manager, and product line manager. While he was working at Broadcom, Long passed levels I, II, and III of the Chartered Financial Analyst (CFA) Institute exam. At Broadcom, Long’s responsibilities in the product marketing department included market, product, and trend analysis, creating proposals about products for upper management that included financial analysis, and managing teams that developed and introduced products to the market.

In May 2010, Long enrolled in the M.B.A. program at the Wharton School, University of Pennsylvania (Wharton M.B.A. program). He graduated with honors in April 2012. His coursework for the program was finance and management-related; he took courses such as financial accounting, new product management, and corporate valuation.

Broadcom had an educational assistance policy providing financial reimbursement, up to $5,250 per employee per calendar year, for tuition, fees, books, supplies, and equipment. To be eligible for reimbursement an employee had to be active (not on an unpaid leave of absence), working full time, and have preapproval of each course. Employees had to request the reimbursement within 60 days after the completion of the course. An employee who terminated his employment within one year of receiving reimbursement was required to repay the reimbursement in full at the time of termination.

In May 2011, Long resigned from Broadcom and, in June 2011, Long began a full-time summer internship in the investment division of Barclays Capital, an investment bank. He worked for Barclays Capital from June through August 2011. Long did not work again until January 2012 when he began working at Connective Capital Management, LLC (Connective Capital), as a senior research analyst in nearby Palo Alto, California. The job posting under which Long applied stated that the senior research analyst would “lead research activities in technology and industrial sectors, with responsibility for all aspects including idea generation, technology/product review, business model and competitive analysis, primary research utilizing Connective’s industry network, valuation modeling, and risk management.” Requirements listed for the senior investment analyst position included technology-related industry experience, a financial and/or engineering background, and “[t]echnical undergraduate and MBA from top university preferred.”

Deductions Taken for Wharton M.B.A. Costs on 2010 and 2011 Tax Returns

Long reported salary income of $527,860 and $117,888 for 2010 and 2011, respectively. He claimed deductions for tuition expenses for attending the Wharton M.B.A. program. Long sought to deduct $86,100 and $84,450 for amounts paid to Wharton for tuition, fees, books, supplies, and room and board for tax years 2010 and 2011, respectively. While Long initially tried to tie the Wharton M.B.A. expenses to a real estate activity in which he was engaged, he subsequently sought to deduct the costs as unreimbursed employee expenses.

Education Expenses as Unreimbursed Employee Expenses

Generally, Code Sec. 162(a) allows a deduction for ordinary and necessary expenses paid or incurred in carrying on any trade or business. Under Reg. Sec. 1.162-5(a), an individual’s expenditures for education are deductible as ordinary and necessary business expenses if the education maintains or improves skills required in his employment or other trade or business. Generally, the performance of services as an employee constitutes a trade or business. A taxpayer may deduct unreimbursed employee expenses only as miscellaneous itemized

deductions on Schedule A, Itemized Deductions, and then only to the extent such expenses exceed 2 percent of the individual’s adjusted gross income. Itemized deductions may be limited under the overall limitations on itemized deductions under Code Sec. 68 and may have an alternative minimum tax implication under Code Sec. 56(b)(1)(A)(i).

Under Reg. Sec. 1.162-5(b)(2) and (3), no deduction for the following education expenses are allowed:

(1) those incurred to meet the minimum educational requirement for qualification in a taxpayer’s trade or business; and

(2) those which qualify a taxpayer for a new trade or business.

IRS’s Position

The IRS did not question whether Long’s M.B.A. degree was incurred to meet the minimum educational requirement of his trade or business. Instead, the IRS argued that the Wharton M.B.A. qualified Long for a new trade or business because it qualified him for the senior research analyst position with Connective Capital. The IRS highlighted the fact that the Connective Capital job description said that someone with an M.B.A. was preferred as evidence that the M.B.A. qualified Long for a new trade or business.

Tax Court’s Analysis

The Tax Court began its analysis by observing that an education that merely refines a taxpayer’s existing skills does not qualify him for a new trade or business. Citing its decisions in Allemeier v. Comm’r, T.C. Memo. 2005-207, and Sherman v. Comm’r, T.C. Memo. 1977-301, the court noted that a taxpayer may deduct the cost of an M.B.A. degree as an unreimbursed employee expense if the taxpayer’s studies improve on preexisting skills, such as management skills. A taxpayer is in the same trade or business, the court said, if he is still in the same general field and still using the same skills; for example, moving from one position to another that also uses management, administrative, and planning skills.

The court was satisfied that Long was qualified in the same trade or business both before and after the M.B.A. program. He was qualified in financial analysis, the court said, through his studies and personal investment experience before enrolling in the M.B.A. program in May 2010. The court also noted that Long had passed all three levels of the CFA exam by June 2009, spending an estimated 900 hours learning about investment tools and portfolio management to prepare for the exam. Long also acquired managerial and financial analysis skills through his employment and continued to develop those skills during the years in issue, the court said. Long developed managerial skills in his role at Broadcom by managing teams that would bring a product to market. The court concluded that Long’s management and finance courses in the Wharton M.B.A. program did not qualify him for a new trade or business, but rather developed skills he was already using in his current trade or business.

With respect to Connective Capital’s job description saying that an M.B.A. was preferred, the court said this was a mere preference, and Long had other qualifications listed in the job description, including personal and professional investment experience and a technical undergraduate degree.

With respect to Long’s unemployment for four months in 2011, the court said that it was clear that he intended to find another position and continue his professional career. Those four months, the court noted, were a transition period during which Long was actively seeking employment while pursuing a defined graduate degree program. As a result, the court concluded that Long was still carrying on his trade or business during this time.

The court then considered whether Long could deduct his educational expenses as an unreimbursed employee expense. In order to deduct employee expenses, the court noted that a taxpayer must not have received reimbursement or been eligible to receive reimbursement. The court observed that Long met the requirements of Broadcom’s educational assistance policy and thus may have been eligible for reimbursement of up to $5,250 per year for his Wharton M.B.A. expenses. However, the court said, since Long terminated his employment in May 2011, less than a year from the periods in which he was eligible for reimbursement, he would have had to immediately repay any reimbursement the day he resigned. Thus, the Tax Court concluded that Long’s decision to not seek reimbursement from Broadcom for his education expenses incurred during January 2010 through June 2011 was reasonable.

The court held that Long was entitled to deduct the costs of his Wharton M.B.A. program for 2010 and 2011 as unreimbursed employee expenses on Schedule A, subject to the applicable limitations on such expenses.

United States Tax Court Decision for the Week – You be the Judge

Collection Action Against Couple Was Proper, United States Tax Court Says

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

The United States Tax Court, in a summary opinion, held that the IRS didn’t abuse its discretion in sustaining a collection action against a couple that reported no tax liability and claimed deductions for charitable contributions, the business use of their home, and $473,309 in casualty or theft losses, finding that the couple failed to participate in their Collection Due Process hearing.

ROBERT CARTER, JR. AND LOLA CARTER,
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

T.C. Summ. Op. 2016-38

United States Tax Court Decision for the Week – You be the Judge

IRS Fails to Prove Fraudulent Intent; Fraud Penalties Inapplicable

The United States Tax Court held that the IRS failed to prove a couple’s fraudulent intent in underpaying their taxes, and they are not liable for fraud penalties; the court sustained an accuracy-related penalty for negligence, finding that they understated their tax liability for one year by failing to report income and claiming unsubstantiated deductions.

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

JAMES A. ERICSON AND REBECCA A. ERICSON,
Petitioners v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

T.C. Memo. 2016-107

 

United States Tax Court Decision for the Week – You be the Judge

No Abuse of Discretion by Settlement Officer; the IRS Levy is Sustained

The United States Tax Court sustained a proposed levy action against an individual who claimed her 1991 bankruptcy discharge relieved her of paying future taxes; the court upheld the IRS’s determinations regarding her underlying tax liabilities and found that the settlement officer didn’t abuse his discretion in sustaining the collection action.

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

GINN DOOSE A.K.A.VIRGINIA DOOSE,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

T.C. Memo. 2016-89

United States Tax Court Decision for the Week – You be the Judge

Expiration of Statute of Limitations Period Prevents IRS Collection of Tax Debt

The United States Tax Court held that the IRS can’t collect an individual’s unpaid taxes because the statute of limitations for collection expired, finding that the IRS, which conceded that the account transcript was inaccurate, failed to establish that an installment agreement was entered along with a waiver to extend the limitations period.

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

PAUL W. GRAUER,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

T.C. Memo. 2016-52

United States Tax Court Decision for the Week – You be the Judge

United States Tax Court Sustains Lien and Levy to Collect Company’s Unpaid Employment Taxes

The United States Tax Court held that the IRS Appeals Office did not abuse its discretion by sustaining the filing of a notice of federal tax lien and a proposed levy against a company for unpaid employment taxes, finding that the company wasn’t entitled to challenge the underlying tax liabilities because it had a prior opportunity to do so.

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

LG KENDRICK, LLC,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

T.C. Memo. 2016-22