Monday, November 13, 2017
In the old Dragnet series, Jack Webb’s character was famous for declaring that “all we want are the facts, ma’am.” As if “the facts” are pristine jigsaw pieces that, if you find enough, give you an objective truth. Lawyers know better. Every “fact” comes from a point of view. Even police body cams are viewpoint-dependent, as seen this this nifty experiment. The lawyer’s job is to assemble together facts which, if believed, tell the story from the point of view most favorable to the client’s interest. They promote “a” truth. The fact-finder has to decide on “the” truth.
Most courses in law school are not structured to teach this lesson. We tend to focus our students on appellate opinions where the facts are a given, not a mystery. Still, in both my Civil Procedure course and my Tax course I take what opportunities I can find to show how the finders of fact have huge power in deciding how a case resolves.
In Tax Court, most facts are usually stipulated by the parties. But sometimes the Tax Court judge is called upon to decide the “facts” from witness testimony. A pair of opinions issued last week illustrate the power of fact-finding. One came out well for the taxpayer. The other did not. More below the fold.
November 13, 2017 in Bryan Camp, New Cases, Tax | Permalink
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Tuesday, November 7, 2017
This is the first of what I hope to be a series of small posts about small annoyances in the Tax Cuts and Jobs Act. Thus the pun. So if you think these posts resemble an Andy Rooney whine or a Seinfeldian rant please remember that I’m just a simple tax professor from West Texas, and a proceduralist to boot.
My first pique is with the proposed mortgage interest reform. It completely ignores a great opportunity to fix a problem in the current statute. The problem is with how the debt limit applies. Current law uses the passive voice to limit the size of the loans that can generate the mortgage interest deduction. For example, the $1,000,000 limit for acquisition indebtedness is written like this: “The aggregate amount treated as acquisition indebtedness for any period shall not exceed $1,000,000 ($500,000 in the case of a married individual filing a separate return)” § 163(h)(3)(B)(ii). The language limiting home equity indebtedness is similar.
The problem with the passive voice is that you cannot tell whether the limit applies to each qualified residence or to each taxpayer. In Voss v. Commissioner, 796 F.3d 1051 (9th Cir. 2015), the 9th Circuit complained that “Discerning an answer ... requires considerable effort on our part because the statute is silent as to how the debt limits should apply in co-owner situations.” When Andy Rooney says it, it’s a whine, but when the 9th Circuit says it, it’s a problem.
November 7, 2017 in Bryan Camp, News, Tax | Permalink
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Monday, November 6, 2017
Last week, the Court decided Carlos Alamo v. Commissioner, T.C. Memo. 2017-215 (Oct. 31, 2017). This is a case worth remembering for at least two reasons. First, it teaches a lesson about how sticking to your guns can get very expensive because of the accumulation of penalties and interest. No matter how hard to work to contest a tax, penalties and interest work harder.
In this case Mr. Alamo worked very hard to contest his 2009 taxes. But his refusal to ever file a 2009 return resulted in some astonishing additions to his basic liability of $86,651 in unpaid taxes for that year. The Service's levy CDP notice, issued on November 1, 2012, reflected accumulated penalties and interest of $46,474. That equals 54% of his unpaid taxes. And who knows what the total looks like now, some five years later.
The lesson, then, can borrow from the great American roots musician Ry Cooder’s classic “The Taxes on The Farmer Feed Us All.” It might go like this:
We worked through Spring and Winter, through Summer and through Fall
But those penalties and interest worked the hardest of us all
They worked on nights and Sundays, they worked each holiday
They settled down among us and they never went away
The second lesson is about how the Service proves compliance with § 6212 notice requirements. It appears that Mr. Alamo is a hobbyist, albeit more clever than most. He tried to play the proof game. He lost. Still, his stubborn refusal to concede that the Service had properly sent him a Notice of Deficiency (NOD) is a great lesson in how to attack the adequacy of notice but also a warning that an obdurate refusal to cooperate during the CDP hearing can destroy the last chance to get the correct tax liability. By insisting on his perceived “right” to make the Service prove compliance with procedure, Mr. Alamo lost this chance to get his tax liability corrected. For more details on this second lesson, see below the fold:
November 6, 2017 in Bryan Camp, New Cases, Tax, Tax Practice And Procedure | Permalink
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Thursday, November 2, 2017
Wednesday, November 1, 2017
Tuesday, October 31, 2017
The IRS does not have an easy job. Remember, it's NOT the "IRS Code" because the IRS is just the agency stuck with the task of carrying out the will of Congress. And the IRS must do this job all while being a political soccer ball — and since the mid-1990's the Republican team has hogged that ball, kicking with more enthusiasm than enlightenment. So it was nice to see a positive story about tax administration picked up by USA Today, especially because USA stories also appear in little town newspapers, like the one I read here in Lubbock, Texas (the Lubbock Avalanche-Journal: IRS: Public-private Crackdown Slashes Identity Theft, Tax Refund Fraud, the story comes from a press release by the IRS that explained:
October 31, 2017 in Bryan Camp, IRS News, Tax, Tax Practice And Procedure | Permalink
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Monday, October 30, 2017
The married taxpayers in Partyka v. Commissioner, T.C. Sum. Op. 2017-79 (Oct. 25, 2017), fell prey to scammers who scheme was to rent a furnished house and then steal the furnishing. The scammers stole a substantial amount of household furnishings from the taxpayers and the taxpayer pegged the value of the stolen items at just under $30,000 for which they claimed a §165 loss deduction.
There was an interesting timing issue in the case, but what struck me was the long discussion of substantiation, and how what may be sufficient documentation of loss for one purpose (police investigation, prosecution) may not be enough for tax purposes. Indeed, the Tax Court found that the taxpayers were potentially liable for the §6662 accuracy-related penalty. I question, however, whether the Tax Court properly applied the Cohan rule. For details, see below the fold.
October 30, 2017 in Bryan Camp, New Cases, Tax | Permalink
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Saturday, October 28, 2017
On October 19th the Tax Court was in Lubbock in the person of Chief Judge Paige Marvel. The Court’s involvement with the ABA Tax Section is well known, but I did want to give a shout-out to its equally important involvement with legal education. Each year the tax faculty at Tech Law (myself, Alyson Outenreath, Steve Black, Vaughn James, and Terri Morgeson) hold a Tax Careers Panel at the Law School (graciously sponsored in recent by the Texas State Bar Tax Section). We always time it so that we can invite the Tax Court Judge to be on the panel. We are delighted that every judge has participated.
October 28, 2017 in Bryan Camp, Law School, Legal Education, Miscellaneous, Tax, Tax Profs, Teaching | Permalink
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Wednesday, October 25, 2017
It is always a pleasure to read a well-crafted opinion and I am writing this post to give a shout-out to Judge David Gustafson’s work in Palmolive Building Investors v. Commissioner, 149 T.C. No. 18, filed October 10, 2017. For the substance of the case, see Peter Reilly’s great post last week. He also links to other coverage in the blogosphere. What I want to point out, however, is how well this opinion is written and, more importantly, why.
I try to teach my students to think of law as a slow-moving conversation between the various sources of law: courts, legislatures, agencies. In particular, I encourage them to focus on trial court opinions when they seek to understand a particular area of law because trial courts are in conversation with the particular Court of Appeals that will review them. So trial courts tend to give very thorough explanations of their decisions when they believe the decision addresses an important point of law that will probably be the subject of Appellate review. True, their conversation with their supervising court is kind of one way in that trial courts are bound the decisions made by their supervising Courts of Appeals.
In performing its trial court function the Tax Court is unlike any other trial court in the United States because its decisions are potentially reviewable by every single one of the 12 geographic federal Courts of Appeals. In effect, it has 12 supervising courts. Brutal. 12 Bosses??
That brutal fact creates a problem. What should the Tax Court do when one Court of Appeals reverses the Tax Court on a legal issue and then the legal issue comes up again? This opinion by Judge Gustafson is a beautiful illustration of the Tax Court’s answer, an answer that may surprise you, even if you think you know the Golsen rule. To learn the one weird trick the Tax Court uses, I invite you to dive beneath the fold. Gee, I hope that click-bait works.
October 25, 2017 in Bryan Camp, New Cases, Tax | Permalink
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Monday, October 23, 2017
Everyone needs a hobby. Psychology Today explained why here. But some hobbies grow and grow until they become all-consuming. As Benjamin Franklin reportedly put it: beware the hobby that eats. Protesting your taxes for stupid reasons is one of those hobbies that eat.
Bob Wood once wrote a great blog post about stupid tax protest arguments. The legal term for “stupid” is, of course, “frivolous.” Bob rightly says it’s one of the worst names you can be called in the tax world. I really love his line: “In IRS lingo, it’s about as bad as you can get, just shy of the other “f” word, fraudulent.”
The case of Henry M. Jagos and Kathy A. Jagos v. Commissioner, T.C. Memo. 2017-202 (Oct. 16, 2017), teaches such a lesson. It appears from the opinion that the Jagoses are among those lucky taxpayers who do not have to work for their money because their money works for them. Of their total taxable income in 2012 of $544,000, $520,000 seems to have come from investments. At least it came from payments they received from Fidelity Investments and Fidelity withheld about $98,000 in taxes.
With that kind of income, one has plenty of time for hobbies. It appears from this case the Jagoses decided that tax protesting would be a good hobby to have. In 2012 they filed a return to get back the $98,000 in withheld taxes. They reported zero income, claiming the payments they received were not taxable income because they “are private-sector citizens (non-federal employee) employed by a private-sector company (non-federal entity) as defined in 3401(c)(d).”
In old-fashioned texting parlance my reaction to that statement vacillates between OMG, LOL and WTF. For the more measured IRS and Tax Court reaction, see below the fold.
October 23, 2017 in Bryan Camp, New Cases, Tax | Permalink
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Tuesday, October 17, 2017
Nina Olson, the National Taxpayer Advocate (as if you did not know), had a great blog last week describing a really cool study her office conducted on how to improve taxpayer compliance with the Earned Income Tax Credit (ETIC ... again, as if you did not know).
The basic idea was to see if a simple letter mailed to taxpayers who had demonstrated some identifiable error in their 2014 EITC claims would result in them making fewer errors in their 2015 EITC claims. Not only that, but the study compared that group to a control group of similar taxpayers who made similar errors but who were not sent a letter explaining where they went wrong.
Certainly, my intuition as a teacher is that when you give feedback on what students do wrong, they tend to do better. The study supports that intuition’s application to taxpayers: tell them what they were doing wrong and they will do better overall and will certainly do better than those who get no such feedback.
What struck me as particularly interesting and worth further comment was the feature of just how the Taxpayer Advocate Service sent the letter to the taxpayers. Nina gives this description:
October 17, 2017 in Bryan Camp, Gov't Reports, Tax, Tax Practice And Procedure | Permalink
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Saturday, October 14, 2017
These would seem to be fat times for organizations that want tax-exempt status. As everyone and their little dog seems to know, Service resource constraints have made recognition as a tax-exempt organization “virtually automatic” for most applicants on the front end. Even the National Taxpayer Advocate complained that it was too easy for organizations to obtain approval.
This week’s lesson from the Tax Court is that the upside of easy approval on the front end may carry a significant downside on the back end. In the reviewed opinion Creditguard of America, Inc. v. Commissioner, 149 T.C. No. 17, Judge Lauber expressed the Tax Court’s opinion that when the Service revokes an organization’s tax exempt status retroactive to a given year, interest starts running from that retroactive year’s return due date, and not just from the date when the Service made its determination to revoke or actually assessed the tax liability. Why is this such a downside? Because the very resource constraints that make for easy application approval on the front end also create significant delays in completing examinations on the back end. In the Creditguard case, the examined year was 2002, the audit was opened in 2003, completed in 2012 and the resulting deficiency assessed in 2013. And now it’s 2017. That’s a lotta interest. More below the fold.
October 14, 2017 in Bryan Camp, New Cases, Tax | Permalink
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Monday, October 9, 2017
It takes money to make money. I use that adage to teach my students the basic idea behind the §162 deduction: the money it takes to make money should be deductible from the money made. On October 2, 2017 the Tax Court decided the case of John S. Barrett and Maria T. Barrett v. Commissioner, T.C. Memo 2017-195. The case illustrates a common problem with that adage: how to know when the costs of traveling away from home are deductible business expenses under §162.
Section 162 allows a deduction for “traveling expenses...while away from home in the pursuit of a trade or business.” In contrast, §262 denies deductions for “personal, living or family expenses.” So that is the tension: is an expense business or personal? The more a taxpayer can connect expenses to business needs and away from personal preferences, the more likely the taxpayer can deduct those expenses.
Travel expenses that are more closely connected to taxpayer’s personal preferences are called “commuting” costs and are not deductible. The idea is that everyone has to live somewhere. And our personal choice of where to live should not allow us a deduction in the cost of going to work. That is the idea of your “tax home.” However, expenses for travel away from the “tax home” that are incurred because of business needs, and so duplicate otherwise personal living expenses, are deductible. The IRS has a really good explanation of this distinction in Rev. Rul. 99-7. The classic case on the subject is Commissioner v. Flowers, 326 U.S. 465 (1946), where the Court held that when a taxpayer’s job moved to a different city, his choice to continue living in the old city and travel 165 miles to the new job was a personal choice. His “tax home” was the new city where his employer required him to work. So his choice to remain in the old city just created a long commute.
On the surface, the Barrett case looks like Flowers. In Barrett, the married taxpayers liven in Las Vegas. For some 20 years Mr. Barrett had a business of providing video recording to one client: the American Israel Public Affairs Committee (AIPAC) and did so using a studio in Las Vegas. But when AIPAC built a new building in Washington D.C., it built its own video recording and production studio. So now instead of travelling across town, Mr. Barrett had to travel to D.C. each year, spending two or more months either in hotels or in a rented condo. The issue was whether Mr. Barrett’s expenses of travel, lodging, and meals were deductible under §162. The IRS thought Mr. Barrett just had a long commute, that his “tax home” was now Washington D.C. The Tax Court disagreed.
October 9, 2017 in Bryan Camp, New Cases, Tax | Permalink
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Monday, October 2, 2017
In a fully reviewed 28 page opinion released Thursday, September 28, 2017, the Tax Court gave full attention to an important problem: when a married taxpayer files a return with an impermissible filing status (such as single or head of household) can the spouses later still elect to file jointly or do the restrictions in §6013(b)(2) apply?
The case is Fansu Camara and Aminata Jatta v. Commissioner. The opinion is worth your time not only for the well-reasoned outcome, but also for its neat demonstration of how precedent sometimes operates like a game of telephone. First I will need to sketch out the facts and holding for you. And then I will have one tax policy observation about the outcome. But I promise it won’t be 28 pages. So, if you are brave, you will continue reading below the fold.
October 2, 2017 in Bryan Camp, New Cases, Tax, Tax Practice And Procedure | Permalink
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Friday, September 29, 2017
Last week the Tax Court issued an opinion in Williams v. Commissioner, T.C. Memo 2017-182. Although it involves small amounts, the opinion teaches a big lesson about the IRS power of offset
Mr. Williams filed his 2013 return reporting $503 of taxable income and withholding of $1,214. So he claimed an overpayment of $711. The IRS accepted his return as filed but did not refund the $711. Instead, it used its offset powers under section 6402(a) to credit that supposed $711 overpayment against Mr. Williams' unpaid tax liabilities from 2011. Later, the IRS audited Mr. Williams' return and proposed a deficiency of $1,403. Mr. Williams' protest to Tax Court was not the usual one. He agreed with the amount of the deficiency, but he thought that since there was not actually an overpayment, per the audit, then the IRS should not have credited that $711 to his 2011 liability but should instead apply it to his 2013 liability. After all, it was part of the wage withholding for 2013. Note that it was to Mr. Williams' benefit to pay off the most recent tax liabilities to increase the chances that the older ones would age out.
September 29, 2017 in Bryan Camp, New Cases, Tax, Tax Practice And Procedure | Permalink
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Thursday, September 28, 2017
Generally, the Tax Code contains statutory consequences for taxpayers who fail to obey statutory commands. Most of those statutory consequences are in the form of: "Additions to Tax" found in sections 6651-6658; "Accuracy-Related and Fraud Penalties" found in sections 6662-6664; "Assessable Penalties" found in sections 6671-6725; and, of course, all the various criminal and forfeiture statutes found in 7201-7345.
But what about statutory commands imposed on the IRS? It turns out not all such commands carry a statutory hammer. Let me give one example. When the IRS assesses a tax and the tax is unpaid, section 6303 requires the IRS to send the taxpayer notice and demand for the unpaid tax within 60 days of the assessment. But the statute is silent as to what consequence, if any, should occur if the IRS sends the notice and demand later than 60 days. Treas. Reg. 301.6303-1 provides "the failure to give notice within 60 days does not invalidate the notice."
September 28, 2017 in Bryan Camp, Tax, Tax Practice And Procedure | Permalink
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Wednesday, September 27, 2017
I previously blogged about a great panel presentation I attended at the Fall ABA Tax Section Meeting in Austin. The presentation was about how to sue someone under § 7434 for filing a false information return.
This past week one of the panelists, Stephen Olson, has blogged more about this subject here and here. The blogs are worth calling to your attention. He dives a bit deeper into this subject to look at whether an Information Return that states the correct payment amount but is otherwise false and misleading, is sufficient to support suit under § 7434.
September 27, 2017 in ABA Tax Section, Bryan Camp, Tax, Tax Practice And Procedure | Permalink
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Thursday, September 21, 2017
Last week I went to the ABA Tax Section Meeting in Austin and really enjoyed attending a terrific panel on Section 7434. The moderator was Professor Leslie Book, of Villanova School of Law and the presenters were Stephen Olsen, of Gawthrop Greenwood, PC; and Mandi Matlock, of Texas RioGrande Legal Aid Inc., Austin, TX.
September 21, 2017 in ABA Tax Section, Bryan Camp, Tax, Tax Practice And Procedure | Permalink
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Wednesday, September 20, 2017
ABA Tax Section meetings are fun! Last week I attended a fascinating panel presentation at the Austin meeting titled "Beyond Bitcoin: Blockchain and the Tax System." The panel was moderated by Stow Lovejoy, of Kostelanetz & Fink, LLP and included Amanda Wilkie, CIO of Withum Smith & Brown; Tony Tuths, of KMPG in Short Hills; and Lisa Zarlenga, of Steptoe & Johnson.
September 20, 2017 in ABA Tax Section, Bryan Camp, Conferences, Miscellaneous, Tax | Permalink
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Tuesday, September 19, 2017
I was sad to learn that at the Austin meeting the ABA Tax Section Council voted to significantly reduce the academic speaker and academic leadership reimbursement policy, retaining it only for academics who meet the Tax Section's definition of "young lawyer" (under 40 or less than 5 years in practice). I believe this is a penny-wise, pound-foolish policy change and can serve only to damage the historically salutary close ties between tax practitioners and tax academics. I think my personal involvement with the ABA Tax Section would likely be much less had those reimbursements not been available to me. I explain more below the fold.
September 19, 2017 in ABA Tax Section, Bryan Camp, Conferences, Legal Education, Tax, Tax Profs | Permalink
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Monday, September 18, 2017
Last week, in the Summary Opinion of Collins v. Commissioner, the Tax Court agreed with the Service that a taxpayer could not exclude $85,000 under section 104(a)(2) for payments received for "emotional distress" even though that distress resulted in physical sickness. It's a case that not only teaches an important basic lesson about 104(a)(2) but also exposes a distressing gap in current tax law. More below the fold.
Mr. Collins had sued his employer for workplace discrimination and retaliation. One of his allegations was that he had "suffered severe emotional distress and anxiety, with physical manifestations, including high blood pressure." The case settled, with $85,000 of the settlement was allocated to "emotional distress." Could Mr. Collins exclude that $85k under section 104(a)(2)? Mr. Collins---like many of my basic tax students---thought he could because he had undeniably physical sickness stemming from the stress of his workplace situation. The Service and Tax Court properly said "no exclusion" based on current law.
September 18, 2017 in Bryan Camp, New Cases, Tax | Permalink
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Friday, September 15, 2017
Wednesday, September 13, 2017
The current discussion about tax reform is focused on reforming substantive tax law and not tax administration. Last April, however, a group of tax practitioner organizations put out a paper calling for tax administration reform. You can find the proposal on the AICPA website here.
The nine practitioner organizations include the AICPA, the National Association of Enrolled Agents, and the National Association of Tax Professionals. Notably absent from the list of practitioner groups are the main tax lawyer organization, the ABA Section on Taxation.
September 13, 2017 in ABA Tax Section, Bryan Camp, IRS News, Tax, Tax Practice And Procedure | Permalink
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Monday, September 11, 2017
Broadly speaking, tax administration (as currently structured) consists of two main functions: determining tax liability and collecting the tax liabilities so determined. There is, however, some overlap because taxpayers sometimes have the opportunity during the tax collection process to get a re-determination of the underlying tax liability. The main opportunity comes in the Collection Due Process (CDP) hearing. This is an administrative hearing conducted by the IRS Office of Appeals and is subject to judicial review by the Tax Court. Two recent Tax Court cases — Mohamed v. Commissioner (TC Sum. Op. 2017-69) and Bruce v. Commissioner (TC Memo. 2017-172) — illustrate just how narrow this opportunity is for taxpayers. To me, they teach the take-home lesson that the best shot taxpayers have at getting the most favorable result is to respond early and often to tax notices. Taxpayers who wait are the taxpayers who cry. For a lesson that Mohamed teaches about tax return preparer penalties see Les Book's great post here. More below the fold.
September 11, 2017 in Bryan Camp, New Cases, Tax Practice And Procedure | Permalink
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Thursday, September 7, 2017
Readers will recall that Congress, in §32102 of the 2015 (FAST) Act, amended IRC §6306 to force the Service to outsource some collection inventory to private collection agencies.
Now, I have no doubt that readers of this blog are totally compliant in their taxes. And if any happen to be delinquent in their taxes, I have no doubt they are not in the category of delinquent taxpayers who face collection from private collection agencies. But I also suspect many readers have received questions about the program from clients, friends, family members, workplace colleagues, neighbors, and others.
September 7, 2017 in Bryan Camp, Gov't Reports, IRS News, Tax, Tax Practice And Procedure | Permalink
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Wednesday, September 6, 2017
The National Taxpayer Advocate Nina Olsen has a blog post here that is well worth your time to read. It's about the Service's automated levy program called FPLP (Federal Levy Payment Program).
One way the Service tries to collect unpaid taxes is by looking for people who owe the delinquent taxpayer money and snagging those payments. That's called a levy. FPLP is a computer program designed to snags payments owed by the federal government to delinquent taxpayers. Now, some people consider it an irony that one hand of the federal government actually sends payments to many delinquent taxpayers who owe the federal government money. Notably, however, FPLP hits what are commonly viewed as "safety net" payments from Social Security and Federal Retirement programs. So other people consider it an irony that one hand of the federal government would partially undo the safety net payments made by the other hand.
September 6, 2017 in Bryan Camp, Gov't Reports, IRS News, Tax, Tax Practice And Procedure | Permalink
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Monday, September 4, 2017
Last week, in Borenstein v. Commmissioner, 149 T.C. No. 10 (Aug. 30, 2017), the Tax Court was asked to apply Section 6511 contrary to its very, very intricate terms. The Court declined to do so. That meant that a taxpayer lost out on a $30k+ refund. Ms. B. had paid about $112k in taxes by the due date of her 2012 return (April 15, 2013), but she did not file the return. While she did get the 6 month extension she still failed to file a return by October 15, 2013. The months went by — 22 of them— before the Service was kind enough in June 2015 to send her an NOD but was unkind in slamming her with an asserted $1.2m deficiency. You know that drill. Ms. B. then quick-like-a-bunny filed a return that September, showing a $79k liability. The Service said "oh, ok, that's good" and accepted her return as accurate. So she now only needed to get her refund, right? Wrong. See below the fold for why.
September 4, 2017 in Bryan Camp, New Cases, Tax Practice And Procedure | Permalink
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