Last week the Tax Court issued 19 opinions, including one articulate opinion on Collection Due Process that teaches an interesting, albeit esoteric, lesson about the bulk-processing nature of tax administration. I will save that case, Scott T. Blackburn, v. Commissioner, 150 T.C. No. 9, for another week, or perhaps our colleagues over at Procedurally Taxing will blog it.
In today’s post I want to look at two of last week’s opinions that I think teach a more basic lesson about the important way in which each tax year is separate from all others. The two cases are: (1) Shane Havener and Amy E. Costa v. Commissioner, T.C. Sum. Op. 2018-17 (Apr. 4, 2018); and (2) Gary K. Sherman and Gwendolyn L. Sherman v. Commissioner, T.C. Sum. Op. 2018-15 (Apr. 2, 2018).
Notice that both of these are what are called “Summary” Opinions. That means the taxpayer in each one elected the small case procedures allowed by IRC §7463 and implemented by Tax Court Rules 170 et. seq. As most readers no doubt know, the upside of that election is relaxed procedural rules (notably rules of evidence) and the downside is that the loser may not appeal to a higher court. The idea is that these are cases where the dispute between the taxpayer and the IRS is really one about factual matters and not about the law. That is why when you access these cases through the Tax Court website, the website pops up the following message in all-caps: “Pursuant To Internal Revenue Code Section 7463(b), This Opinion May Not Be Treated As Precedent For Any Other Case.”
The very reason why these cases make for lousy precedent, however, is why they often make for good lessons about basic tax concepts. The lesson I see in these two cases is about the appropriate accounting period, a particularly timely lesson this week since April 16th (the deadline for filing returns this year since April 15th falls on a Sunday) is right around the proverbial corner.
To economists, the most accurate accounting period is one’s lifetime. That is, the best measure of income is what happens over our lifetime. But because governments need revenue sooner, because not all taxpayers die (think corporations), and because even if tax revenue would even out in the long, long, long run, the transition costs to a lifetime accounting period would be untenable, Congress created a yearly accounting period for income tax (and shorter accounting periods for excise taxes such as the employment tax).
That yearly period ends on December 31st for most of us mere mortals. The yearly questions we ask are “how much income did I have during the last year?” and “what expenditures did I make that I can deduct from the income I made?” The point of today's lesson is that we must ask those questions every year and just because we get a wrong answer in one year does not entitle us to continue using that wrong answer in later years.
More below the fold.
April 9, 2018 in Bryan Camp, New Cases, Tax, Tax Practice And Procedure | Permalink
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