Inherited IRAs can present a number of challenges. In Ozimkoski v. Commissioner, T.C. Memo. 2016-228, the court considered the tax implications of a withdraw from an inherited IRA that was used to settle a probate dispute with the couple’s son. The case shows what not to do when using IRA funds to settle a probate…
Tax Articles
Proof of Cash on Hand to Abate Failure to Pay Penalty
The failure to pay penalty is one of the most commonly assessed penalties. The penalty does not apply and can be abated or removed if the taxpayer can establish that the failure to pay is due to reasonable cause and not to willful neglect. But how do you establish reasonable cause? In C1 Design Group, LLC…
Continuation Theory: Collecting Taxes Owed by Prior Business
If a business has or expects to have a significant debt, it may transfer its assets and/or operations to a new business entity to try to avoid the debt. There are a number of non-tax cases where the courts have addressed this. The courts generally apply a “continuation” theory in these cases which asks whether…
Getting Out of IRS Adjustments Agreed to on Audit
Taxpayers often regret agreeing to IRS audit adjustments. These agreements are not necessarily final when the paperwork is signed. The taxpayer typically still has time to change their mind. In Sandoval Lua v. United States, No. 2016-1313 (5th Cir. 2016), the court considered a case where the taxpayer changed his mind, but failed to act…
Bankruptcy Court Rejects IRS Plan to Sell Residence
Bankruptcy can be a great way to get rid of older tax debts. The bankruptcy process is supposed to provide a fresh start. The In re Christensen, 15-29773, 15-29783 (2016 Bankr. D. Utah), case is an example where the IRS attempted to use the bankruptcy process not to provide a fresh start, but to collect…
Tax Benefit Rule & Transfers at Death
A sole proprietor incurred a business expense. He dies in the same year. The business expense was for property that would last more than one year. Does the business owner’s estate have to report the amount of the deduction as income? This question is answered by considering the tax benefit rule. The court addressed this…
Judicial Review for Trust Fund Recovery Penalties
Taxpayers who are assessed trust fund recovery penalties need to take note of the U.S. Tax Court’s recent decision in Anderson v. Commissioner, T.C. Memo. 2016-219. The decision highlights a potential foot fault they may make when trying to resolve their trust fund recovery penalties at the IRS administrative level. Contents1 Facts and Procedural History2…
Tax Court Expands Innocent Spouse Relief for Divorced Taxpayers
Innocent spouse relief can allow a taxpayer to avoid joint liability for taxes that arose during the marriage. There is an exception for the would-be innocent spouse if they had actual knowledge of the item that resulted in the tax. The U.S. Tax Court addressed this limitation in McDonald v. Commissioner, T.C. Summary Opinion 2016-79,…
Written Manager Approval for Penalties
An IRS agent is generally required to get written approval from their manager for a tax penalty can be assessed. This is requirement is set out in the Code. This begs the question as to what happens if the agent does not get written approval before he closes the audit? The court addressed this in…
IRS Closing Agreement Not Binding for “All” Tax Issues
A well-drafted closing agreement can provide a level of certainty to an uncertain tax position. The agreements do this by binding the IRS and the taxpayer. They normally include language that says that the agreements are valid for all Federal income tax purposes. In Analog Devices, Inc. v. Commissioner, 147 T.C. 15, the court concluded…