Does Withholding on Wages Convert the Wages to a Tax?

The U.S. Bankruptcy Court recently considered whether amounts withheld from wages in excess of the amount of the income tax liability owed is a refund of tax or a refund of wages. The case is In re Crutch, No. 15-44523-cec. (E.D.N.Y. 2017). The case is a reminder to those taxpayers who are considering bankruptcy that…Continue readingDoes Withholding on Wages Convert the Wages to a Tax?

No Reasonable Cause Defense for Some Trust Fund Penalties

The IRS is serious about unpaid employment taxes. The trust fund recovery penalty can be used to collect these taxes. This penalty makes a business tax liability a personal liability. With most penalties, the penalty can be abated for reasonable cause. But what about the trust fund penalty? Can it be abated for reasonable cause?…Continue readingNo Reasonable Cause Defense for Some Trust Fund Penalties

Post Office Tracking Data Can Result in Tax Disputes

There have been a number of tax cases involving disputes as to when tax documents are mailed to the government. In Tildon v. Commissioner, No. 15-3838 (7th Cir. 2017), the court considered a dispute that turned on whether U.S. Postal Service tracking data is a “postmark made by the U.S. Postal Service.” The Facts and…Continue readingPost Office Tracking Data Can Result in Tax Disputes

Transferring Property Owned by Taxpayer With Unpaid Taxes

Buyers have to be careful when purchasing property subject to an IRS lien.  The recent United States v. Urioste, No. 4:15-CV-1787-VEH (N.D. Ala 2017) considered the situation where a business purchased and improved real estate that was encumbered by an IRS tax lien. Facts & Procedural History The case relates to the tax liabilities of Mr.…Continue readingTransferring Property Owned by Taxpayer With Unpaid Taxes

Taxpayer Retains Right to Tax Refund Claims Despite Bankruptcy Discharge

The bankruptcy-tax rules can present a number of opportunities. In Martin v. United States, Case No. 3:13-CV-03130 (C.D. Ill 2017), the court concludes that the taxpayers retained the right to sue the IRS for substantial tax refunds for taxes that were overpaid prior to their bankruptcy, despite having discharged the their debts in bankruptcy. Bankruptcy…Continue readingTaxpayer Retains Right to Tax Refund Claims Despite Bankruptcy Discharge

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…Continue readingProof of Cash on Hand to Abate Failure to Pay Penalty

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…Continue readingContinuation Theory: Collecting Taxes Owed by Prior Business

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…Continue readingGetting Out of IRS Adjustments Agreed to on Audit

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…Continue readingBankruptcy Court Rejects IRS Plan to Sell Residence

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. Facts and Procedural History The…Continue readingJudicial Review for Trust Fund Recovery Penalties

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,…Continue readingTax Court Expands Innocent Spouse Relief for Divorced Taxpayers

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…Continue readingWritten Manager Approval for Penalties

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…Continue readingIRS Closing Agreement Not Binding for “All” Tax Issues

Court Invalidates Process to Challenge IRS Levy

If the IRS fails to mail or mails a required collection notice to a taxpayer using the wrong address, should the taxpayer be able to get a court ruling invalidating the IRS’s subsequent collection efforts?  The court addresses this in Adolphson v. Commissioner, No. 15-2242 (7th Cir. 2016). Facts & Procedural History The IRS “issued” a…Continue readingCourt Invalidates Process to Challenge IRS Levy

IRS Wage and Salary Levy Exemptions for 2017

The IRS recently issued Publication 1494, Tables for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income – Forms 668-W(ACS), 668-W(c)(DO) and 668-W(ICS), for 2017.  This publication provides the amount of wage and salary that are exempt from the IRS’s levy. The monthly wage and salary amounts for 2017 are as follows: Exemptions…Continue readingIRS Wage and Salary Levy Exemptions for 2017

Reportable Transaction Penalty, Full Payment Required

Tax matters can be litigated in a number of different courts. One of the advantages of bringing suit in U.S. Tax Court is that the tax does not have to be paid prior to bringing suit. For tax matters litigated in the U.S. District Courts or the Court of Federal Claims, the tax has to…Continue readingReportable Transaction Penalty, Full Payment Required

Can IRS Cure Defective Summons With Second Summons?

The administrative summons is one of the IRS’s primary tools for obtaining information from taxpayers and third parties. There are very few requirements that the IRS has to satisfy in issuing summones. In Maxcrest Limited v. United States, Case No. 15-mc-80270-JST, the U.S. District Court for the Northern District of California addressed whether the IRS…Continue readingCan IRS Cure Defective Summons With Second Summons?

Lost IRS Notice Was Timely, Despite IRS Not Following Procedures

There are a number of dates that must be met when it comes to taxes. Many of these dates are triggered by some action by the IRS. This raises the question as to what happens if the taxpayer is not aware that the IRS took the action and the IRS destroys the primary evidence that…Continue readingLost IRS Notice Was Timely, Despite IRS Not Following Procedures

Stay-at-Home Mom Not Liable for Trust Fund Recovery Penalty

The IRS has the ability to assess a trust fund recovery penalty against those who are responsible for withholding payroll taxes for employees if they fail to withhold and pay over the taxes to the IRS. Then penalty is equal to the amount of the withheld but unpaid tax. Liability for the penalty falls on…Continue readingStay-at-Home Mom Not Liable for Trust Fund Recovery Penalty

TIGTA Questions IRS’s Future State Reorganization

IRS has the power to decide who gets what, when, and how when it comes to federal taxes. Many of these decisions are made by IRS employees as part of examining tax returns. This is why we are all watching the IRS reorganize its audit function. The Treasury Inspector General for Tax Administration (“TIGTA”) recently…Continue readingTIGTA Questions IRS’s Future State Reorganization

No Damages for Emotional Distress for IRS Violations of Bankruptcy Law

When a private party violates the law, there are often consequences. This is especially true for the automatic stay that protects individuals in bankruptcy from collections actions during the bankruptcy proceeding. In Hunsaker v. United States, Case No. 6:16-cv-00386-MC, the Ninth Circuit Court of Appeals concluded that the IRS’s repeated violations of these laws does…Continue readingNo Damages for Emotional Distress for IRS Violations of Bankruptcy Law

Partnership Return Corrected by Amended Return

In U.S. v. Stewart, No. 15-20596, the Fifth Circuit Court of Appeals concluded that the taxpayer was not entitled to a tax refund that was based on a corrected Schedule K-1 received from a partnership the taxpayer owned. The question on appeal was whether a partnership tax return can be corrected by filing an amended…Continue readingPartnership Return Corrected by Amended Return

Proving that You Mailed a Tax Return to the IRS

How do you prove that you mailed a tax return to the IRS?  This may sound like a simple question to answer.  It isn’t.  The have been and continue to be disputes involving this very issue.  The recent In Re McGrew, No. 13-00149 (Bank. N.D. IA 2016) provides an example. Facts & Procedural History McGrew filed…Continue readingProving that You Mailed a Tax Return to the IRS

“One of its Principal Purposes” for an Installment Sale

What if you could transfer depreciable assets from one legal entity that you own to another legal entity that you own, not report the gain from the sale until some future year, and then step up the tax basis in the assets due to the sale and start taking increased depreciation deductions using the stepped…Continue reading“One of its Principal Purposes” for an Installment Sale

Accuracy Related Penalties Do Not Apply to Full Understatement of Tax

In Hatcher v. Commissioner, T.C. Memo. 2016-188, the court considered a very common error IRS agents make in computing the Section 6662 accuracy related penalty. The IRS applied the penalty to the entire understatement of tax, rather than the portion of the understatement that was not subject to the reasonable cause defense. This is one…Continue readingAccuracy Related Penalties Do Not Apply to Full Understatement of Tax

How Long Do You Keep Your Tax Records?

Taxpayers often ask how long they have to keep their tax records. Many taxpayers only keep records for three to six years. In Reyonoso v. Commissioner, T.C. Memo. 2016-185, the court considered a case that turned on whether the taxpayer could produce records to support that he had made a mark-to-market election nearly twenty years…Continue readingHow Long Do You Keep Your Tax Records?

How People and the Tax System Impact Individual Cases

In tax, we spend a lot of time focusing on tax rules. But tax rules only go so far. The results in tax cases are impacted by the people who work tax cases as much as they are by the tax rules. Our system of tax administration also plays a role. This is hard to…Continue readingHow People and the Tax System Impact Individual Cases

Court Revisits Reasonable Cause Abating Penalties

The U.S. Supreme Court has made it clear that taxpayers cannot avoid penalties by blindly rely on tax attorneys to file tax returns and make tax payments. These situations are unfortunate. The court in Specht v. United States, No. 15-3095 (6th Cir. 2016) highlights one way that taxpayers may be able to avoid the bright…Continue readingCourt Revisits Reasonable Cause Abating Penalties

Substantial Compliance vs Strict Compliance

There are a number of cases where taxpayers have had to pay more tax than they should due to technical foot faults. These cases often come up when the IRS employees believe that their job is to look for strict compliance (100%) rather than substantial compliance (something more akin to 80%). This brings us to…Continue readingSubstantial Compliance vs Strict Compliance

Taxes from IRS Audit Remitted to U.S. Virgin Islands

Taxes Remitted to the U.S. Virgin Islands in Error were Not Compulsory Payments in an Audit One of the common issues that comes up on audit is whether payments to foreign governments are creditable for purposes of the U.S. foreign tax credit (“FTC”). This often hinges on whether the payments were “compulsory.” There is little…Continue readingTaxes from IRS Audit Remitted to U.S. Virgin Islands

Finding Opportunities to Contest Tax Liabilities

Opportunities for Contest Tax Liabilities – Houston Tax Attorney The IRS puts taxpayers on notice by mailing letters and notices. It is common for these letters and notices to not be delivered or to be delivered late. This can present a serious problem for taxpayers, particularly when the letter or notice is one that proposes…Continue readingFinding Opportunities to Contest Tax Liabilities

Extend Time for an IRS Audit

Agreeing to Extend the Time for an IRS Audit or Not? Congress provided a limited time for the IRS to audit tax returns. This time can be extended if the taxpayer agrees. While some taxpayers require the IRS to stick to the time provided by Congress, other taxpayers choose to extend the time period. This…Continue readingExtend Time for an IRS Audit

How to Prove Refund Claim Timely Filed

The Tax Code imposes several artificial deadlines and consequences for not meeting those deadlines. Many tax deadlines are strict. The result in tax cases often come down to whether a taxpayer can prove that he met these deadlines. In Chan v. United States, No. 2:15-cv-739-DN-BCW (D. Utah 2016), the court considered whether an Adobe PDF…Continue readingHow to Prove Refund Claim Timely Filed

IRS Agents Contact Third Parties During IRS Audit

We often get questions as to whether IRS agents can contact various third parties during the course of an IRS audit. The general rule is that IRS agents can in fact contact third parties. And they sometimes do. The ability to do this is limited and it does not exempt IRS agents from the confidentiality…Continue readingIRS Agents Contact Third Parties During IRS Audit

Can U.S. Tax Court Order IRS to Make Refunds?

There are a number of forums for litigating tax disputes, such as the U.S. Tax Court. There are pros and cons associated with bringing suit in each forum. Taxpayers often pass on litigating cases in the U.S. Tax Court in cases when they are seeking a refund of an amount in excess of the amount…Continue readingCan U.S. Tax Court Order IRS to Make Refunds?

IRS Audit Adjustments That Change Accounting Methods

Given the potential for the adjustments to trigger extremely large tax liabilities, accounting method changes made by the IRS on audit can be doomsday scenarios for unwary taxpayers. In Nebeker v. Commissioner, T.C. Memo. 2016-155, the court addressed a common situation where the IRS makes an adjustment on audit that is an accounting method, but…Continue readingIRS Audit Adjustments That Change Accounting Methods

Duty Applied to IRS Lawsuit to Collect Unpaid Taxes

Duty of Consistency in Suit to Collect Unpaid Taxes Many tax cases are won or lost based on tax procedure issues. The U.S. v. Holmes, Civil Action No. 4:15-cv-00626 (S.D. Texas 2016), case serves as a reminder of this. The case involved a lawsuit filed by the government in the eleventh hour and the duty…Continue readingDuty Applied to IRS Lawsuit to Collect Unpaid Taxes

What Facts are Needed to Abate Penalties?

The IRS is authorized to abate penalties for reasonable cause. There is no set of standard facts or factors that show reasonable cause. Taxpayers have made various arguments, with the IRS and courts rejecting most of them. How bad does life have to be for there to be reasonable cause? The court addresses this in…Continue readingWhat Facts are Needed to Abate Penalties?

IRS Collections for U.S. Military Personnel

Military Tax Rights under the SCRA Judicial and administrative proceedings are temporarily suspended for those serving in the United States military. This includes a temporary hold on IRS collection actions. These laws are not provided in the Tax Code. Rather, they are set out in the Service members Civil Relief Act or SCRA. Military Tax…Continue readingIRS Collections for U.S. Military Personnel

Unmarried Taxpayers Can Claim Mortgage Interest Deduction

Mortgage Interest Deductions for Unmarried Couples In Voss v. Commissioner, 796 F.3d 1051 (9th Cir. 2015), the court addressed the rule that limits the deductibility of interest on home mortgages and home equity loans. This rule limits the amount of interest that can be deducted on mortgages in excess of $1 million and home equity…Continue readingUnmarried Taxpayers Can Claim Mortgage Interest Deduction

TIGTA Review of the IRS’s Practices in Levying on Social Security Payments

The IRS has the power to levy on or take a taxpayer’s property. This includes nearly all property, including Social Security payments. The Treasury Inspector General for Tax Administration (TIGTA), the agency that audits the IRS, recently released a report that examined the IRS’s practices in levying on Social Security payments. Social Security Payments TIGTA’s…Continue readingTIGTA Review of the IRS’s Practices in Levying on Social Security Payments

The IRS’s Streamlined Procedures for Foreign Accounts

Given its limited resources and ability to detect foreign assets, accounts and income, the IRS has offered various voluntary programs to entice taxpayers to come clean and report this information. The IRS’s OVDP program and the more recent streamlined procedures are two examples. The Maze v. Internal Revenue Service, Nos. 15-1806 (D.D.C. 2016), highlights several…Continue readingThe IRS’s Streamlined Procedures for Foreign Accounts

Online Account Trigger FBAR Filing, Not Poker Websites

In Hom v. United States, No. 14-16214 (9th Cir. 2016), the court addressed whether an online payment account and whether poker websites triggered FBAR filing requirements. The stakes are high with FBAR penalties, so those with foreign accounts should take heed. FBAR Filing Requirements Taxpayers with an interest in or authority over certain foreign accounts…Continue readingOnline Account Trigger FBAR Filing, Not Poker Websites

Five IRS Audits in Ten Years is Not Harassment

There are times when the IRS does not act reasonably. It happens. There are also instances where a few IRS employees take it upon themselves to thoroughly examine all aspects of the taxpayer’s finances. Taxpayers do have rights, but these rights only go so far. This brings us to the Appenrodt v. United States, No.…Continue readingFive IRS Audits in Ten Years is Not Harassment

IRS Whistleblower Claimants May Be Entitled to Larger Awards

The IRS is often gets more from whistleblowers than one may think. Specifically, the IRS may be able to recoup taxes, penalties and interest for other years or related but different issues. There is a question as to whether the whistleblowers who shine the light on these other years or issues should be compensated for…Continue readingIRS Whistleblower Claimants May Be Entitled to Larger Awards

Taxpayer Not Entitled to Attorneys Fees Despite Prevailing In Lawsuit

The government makes mistakes. It is not perfect. The United States v. Appelbaum, No. 5:12-CV-186 (W.D.N.C. 2016) , case provides an example. In Appelbaum, the government sued the taxpayer for nearly $4 million that the taxpayer did not owe. The question before the court was whether the taxpayer could recover attorneys fees he incurred in…Continue readingTaxpayer Not Entitled to Attorneys Fees Despite Prevailing In Lawsuit

Failing Business Triggers Trust Fund Penalties

Taxes are often neglected when a business is having financial difficulties. This can have serious repercussions for the business and the individuals who are responsible for having taxes withheld and remitted to the IRS. The IRS has the ability to assess trust fund recovery penalties against these individuals, which essentially makes the business tax liability…Continue readingFailing Business Triggers Trust Fund Penalties

Choosing Not to Comply With an IRS Summons

The law requires taxpayers to keep certain records. The IRS expects taxpayers to produce these records on request. The IRS has the power to issue an administrative summons if the taxpayer does not cooperate. This begs the question as to what happens if the taxpayer chooses not to comply with an IRS summons? The United…Continue readingChoosing Not to Comply With an IRS Summons

Transferee Liable for $13 Million in Pre-Judgment Interest

There are times when our tax laws draw distinctions that can seem unfair. The Tricarichi v. Commissioner, T.C. Memo. 2016-132, highlights one of these situations. Tricarichi is a transferee liability case in which the taxpayer was held liable for $13 million in interest on a tax liability owed by a third party even though the…Continue readingTransferee Liable for $13 Million in Pre-Judgment Interest

Business Should Review Interest Netting in Light of Wells Fargo Case

In Wells Fargo & Company v. United States, No. 2015-5059, the United States Court of Appeals for the Federal Circuit considered whether a business that has merged with another business can obtain refunds for interest the prior business entity paid to the IRS. The court’s broad reading of the interest netting statute may allow some…Continue readingBusiness Should Review Interest Netting in Light of Wells Fargo Case

Discharging Taxes in Bankruptcy vs. Settling with the IRS

Bankruptcy can be one of the best methods for resolving tax debts. This is particularly true if the taxpayer’s primary assets only consist of retirement accounts and equity in a personal residence. The recent In re Moore, No. 15-42046 (Bankr. E.D. Tex. Jul. 7, 2016), case presents an opportunity to consider the results if the…Continue readingDischarging Taxes in Bankruptcy vs. Settling with the IRS

Federal Trade Commission Warnings About Tax Relief Companies

There have been a number of bad actors in the tax resolution industry. One only has to do a cursory search of the internet to find consumer complaints about tax relief companies that do this work. The Federal Trade Commission (FTC) has an article on its website that warns consumers about these bad actors. The…Continue readingFederal Trade Commission Warnings About Tax Relief Companies

Mentally Incompetent Owes Frivolous Return Penalty

In Chief Counsel Memo 201623010, the IRS addressed whether Section 6702 frivolous return penalty can be abated due to the taxpayer’s mental incapacity. One would think that a mentally incapacitated person would not be liable for a penalty for filing a frivolous tax return. Mental Incapacity, Generally The law recognizes that mental incapacity as a…Continue readingMentally Incompetent Owes Frivolous Return Penalty

A Look at the IRS Automated Underreporter Program

The IRS uses a computer matching system to make various tax adjustments. The IRS refers to this as its automated underreporter program. This program adjusts millions of taxpayer accounts each year. The program generally goes unnoticed, until there is a problem. The Newman v. Commissioner, T.C. Memo. 2016-125, case provides an example of how this…Continue readingA Look at the IRS Automated Underreporter Program

Ski Condo Held in Revocable Trust Not Subject to Federal Tax Lien

A Look at the IRS Automated Underreporter ProgramIn U.S. v. Kimball, No. 2:14-CV-521-DBH, the U.S. District Court in Maine held that a federal tax lien did not attach to a ski condo held in trust even though the trust was a revocable trust and the taxpayer had access to the condo and he paid the…Continue readingSki Condo Held in Revocable Trust Not Subject to Federal Tax Lien

IRS Budget Constraints Continue to Make Resolving Cases Difficult

The IRS’s budget constraints have made it more difficult for taxpayers to resolve IRS tax debt problems. This is especially true for the work that it has shifted to IRS service centers to be worked remotely. The Wang v. Commissioner, T.C. Memo. 2016-123, case provides an example of this. Facts & Procedural History  Mr. Wang…Continue readingIRS Budget Constraints Continue to Make Resolving Cases Difficult

IRS Tax Assessment Overturned Because Notice Not Property Mailed

In Buffano v. United States, T.C. Memo. 2016-122, the U.S. Tax Court concluded that that the taxpayer was not liable for tax because the IRS failed to properly assess the tax because the IRS did not mail notices of the tax deficiencies to the taxpayer’s last known address. This case is a good example of…Continue readingIRS Tax Assessment Overturned Because Notice Not Property Mailed

Stock Sale Triggers Transferee Liability for Buyer’s Tax Liability

In Marshall v. Commissioner, T.C. Memo. 2016-119, the U.S. Tax Court concluded that business owners who sold their stock was liable for the buyer’s Federal income taxes that arose after the sale. Facts & Procedural History The taxpayers owned Marshall Associated Contractors, Inc. (MAC), which was subject to tax as a Subchapter C corporation. MAC…Continue readingStock Sale Triggers Transferee Liability for Buyer’s Tax Liability

Court Affirms that Tax Prepearer Fraud Holds Open Assessment Statute

In Finnegan v. Commissioner, T.C. Memo. 2016-118, the U.S. Tax Court refused to reconsider its previous decision that a tax return preparers fraud keeps the statute of limitations open on the taxpayer’s Federal income tax return. Facts & Procedural History On February 7, 2013, the IRS issued a notice of deficiency for tax years 1994-2001.…Continue readingCourt Affirms that Tax Prepearer Fraud Holds Open Assessment Statute

Unperfected Loan Trumped IRS Lien

The IRS has broad collection powers. But its collection powers are not unlimited.  The recent U.S. v. Heptner, Case No. 8:15-cv-1125-T-33MAP (Dist. Fla. 2016) case provides an example. Facts & Procedural History Heptner practiced law from 1984-2001.  After being disbarred, he was employed as a legal advisor and in-house counsel by Damien Freeman, an entrepreneur,…Continue readingUnperfected Loan Trumped IRS Lien

New Evidence Not In Record Can Be Considered by Court

Cases before the U.S. Tax Court are often won or lost by whether evidence is or is not admitted in the record. Lunnon v. Commissioner, No. 15-9007 (10th Cir.), provides an example of how this works in a tax collections case. Facts & Procedural History Mr. Lunnon failed to pay employment and unemployment taxes for…Continue readingNew Evidence Not In Record Can Be Considered by Court

Asset Sale Did Not Trigger Transferee Liability for Buyers Taxes

In Sloan v. Commissioner, T.C. Memo. 2016-115, the U.S. Tax Court refused to apply transferee liability under Section 6901 to make a taxpayer who sold company assets to a third party liable for the third party’s tax liability. The court reached this conclusion even though there was some indication that the taxpayers’ advisers knew that…Continue readingAsset Sale Did Not Trigger Transferee Liability for Buyers Taxes

IRS Tax Lien Did Not Attach to Trust Property

In Duckett v. Enomoto, Dkt No. 2:14-cv-01771, the U.S. District Court in Arizona concluded that a Federal tax lien for taxes owed by a trust beneficiary did not attach to the entire trust. This issue often comes up in IRS collection cases where the taxpayer is the beneficiary of a trust. Facts & Procedural History …Continue readingIRS Tax Lien Did Not Attach to Trust Property

Refund Claims Involving Loss Carrybacks Include Computational Adjustments in Earlier Years

In Stein, LLC, v. United States, No. 2:13-03224, the United States District Court for the Western District of Louisiana addressed the question of whether refund claims stemming from loss carrybacks include computational adjustments in the carryback years. This type of issue often comes up when closing out IRS audits, which is evidenced by this case…Continue readingRefund Claims Involving Loss Carrybacks Include Computational Adjustments in Earlier Years

IRS Can Raise New Issues on the Eve of Trial

The ability to have ones day in court is fundamental to our system of justice. For claims involving the government, as with taxes and the IRS, this includes the right to know the government’s position with sufficient advance notice so that the taxpayer can prepare their case. This begs the question, can the IRS raise…Continue readingIRS Can Raise New Issues on the Eve of Trial

IRS Limits Ability to Submit Informal Refund Claims During Audits

The IRS released Publication 5125, Large Business & International Examination Process, which describes the IRS audit process and the new change for taxpayers submitting informal refund claims during the audit. The Publication continues the IRS’s prior policy of cooperation, responsiveness, and transparency in conducting audits. The Publication re-iterates the IRS’s expectations for its examiners and…Continue readingIRS Limits Ability to Submit Informal Refund Claims During Audits

Limits on IRS’s Ability to Ask for Records Multiple Times

If the IRS conducts an audit for one year and reviews records, but fails to keep the records and then conducts an audit for a second year, is the taxpayer obligated to provide a second copy of the records the IRS failed to keep from the first year?  The court addressed this in United States v.…Continue readingLimits on IRS’s Ability to Ask for Records Multiple Times

Who Can Sign a Form 2848 Power of Attorney for an LLC

We are often asked who can sign a POA or Form 2848, Power of Attorney and Declaration of Representative, for a limited liability company or LLC? The IRS addressed this in AM 2015-004. About Form 2848 – Power of Attorney The Form 2848 allows the IRS to disclose taxpayer information to persons who represent the…Continue readingWho Can Sign a Form 2848 Power of Attorney for an LLC

You Cannot Dodge Notice for the Trust Fund Recovery Penalty

It is almost always advisable to keep on the lookout for and open correspondence from the IRS. The Haben v. Commissioner, T.C. Summary Opinion 2015-55, case provides an example. In Haben, the U.S. Tax Court concluded that a taxpayer could not contest a trust fund recovery penalty during a collection due process hearing because he…Continue readingYou Cannot Dodge Notice for the Trust Fund Recovery Penalty

IRS Collections When Taxpayer’s Income Varies

In Charnas v. Commissioner, T.C. Memo. 2015-153, the U.S. Tax Court addressed whether a lawyer who had variable income from year to year was able to pay his outstanding tax debt. The court concluded that the IRS erred in not considering the variable nature of the taxpayer’s income in determining whether he could pay his…Continue readingIRS Collections When Taxpayer’s Income Varies

Reasonable Cause Defense for Penalty Waives Privilege

In Eaton Corporation & Subsidiaries v. Commissioner, the U.S. Tax Court concluded that raising the reasonable cause/good faith defense to tax penalties waived the work product, attorney-client, and federal tax practitioner privileges. This is a serious issue that has to be considered when submitting penalty abatement requests based on a reasonable cause defense. APA (Advance…Continue readingReasonable Cause Defense for Penalty Waives Privilege

Joint Committee Review Limit Increased to $5 Million

The Joint Committee on Taxation or JCT is a part of the U.S. Congress. It is tasked with investigating the U.S. tax system and reporting on proposed measures and methods for the simplification of taxes. To carry out this function, the IRS is obligated to provide a report to the JCT for any refund in…Continue readingJoint Committee Review Limit Increased to $5 Million

Court Says Tax Lien Does Not Have to Be Filed Prior to Entering Into an Installment Agreement

In Budish v. Commissioner, T.C. Memo. 2014-239, the U.S. Tax Court held that the IRS erred in insisting on a tax lien being filed before it would accept an installment agreement. This case serves as a reminder that a tax lien does not have to be filed if it creates a hardship that would make…Continue readingCourt Says Tax Lien Does Not Have to Be Filed Prior to Entering Into an Installment Agreement

Do IRS Penalties Assessed by Computers Need Manager Approval?

The courts have been abating penalties if the IRS fails to obtain manager approval for the penalties. But what about penalties assessed by the IRS computer? Do they need to be approved by a manager? The court addresses this in Grace Foundation v. Commissioner, T.C. Memo. 2014-229. Facts & Procedural History R.S. Ohendalski created and…Continue readingDo IRS Penalties Assessed by Computers Need Manager Approval?

Where Did the Tax Protesters Go?

It has almost been twenty years since Congress enacted the Revenue Restructuring Act of 1998 (“RRA98”). RRA98 prohibits the IRS from designating taxpayers as “tax protesters.” What is a Tax Protester? A tax protester is someone who uses illegal methods to protest the tax laws. This often includes Constitutional and other arguments about the taxpayer…Continue readingWhere Did the Tax Protesters Go?

Designating Voluntary Tax Payments for Business Owners

If you owe a third party for several different items and you voluntarily pay a debt, you should get to designate which item the payment is to be applied to.  This is the general rule for voluntary payments made to the IRS.  But according to IRS Action on Decision 2014-01, the IRS will not follow…Continue readingDesignating Voluntary Tax Payments for Business Owners

Informal Offer in Compromise? Is There Such a Thing?

What if you reach an oral agreement with the IRS to settle the tax debt, but then the IRS back tracks on the agreement? If you didn’t submit the offer on a Form 656, do you have any rights? The court addresses this in Bergdale v. Commissioner, T.C. Memo. 2014-152. Facts & Procedural History Mr.…Continue readingInformal Offer in Compromise? Is There Such a Thing?

Wife Can Rely on Husband (to Avoid a Tax Penalty)

Marriage can be challenging.  This is particularly true when it comes to finances.  And it is even more so when it comes to taxes.  But what if a spouse reports something wrong?  Can the other spouse get out of penalties for the wrong doing?  The court answers this in Miller v. Commissioner, T.C. Summary Opinion 2014-74,…Continue readingWife Can Rely on Husband (to Avoid a Tax Penalty)

IRS Notice of Intent to Levy Sustained Despite IRS Not Following Its Procedures

In Eichler v. Commissioner, 143 T.C. 2, the U.S. Tax Court said that the IRS Notice of Intent to Levy was proper even though the IRS failed to follow its policy to check an installment request into its system which would have stopped IRS collection actions. Facts & Procedural History  The IRS assessed Section 6672…Continue readingIRS Notice of Intent to Levy Sustained Despite IRS Not Following Its Procedures

IRS Appeals: New Evidence & Theories

The IRS released a memo describing Phase II of the Appeals Judicial Approach and Culture (AJAC) program. This program is intended to formalize many of the best practices of the IRS Office of Appeals (Appeals). Tax disputes often end up in Appeals. Appeals is able to successfully resolve or settle most cases. The Appeals process…Continue readingIRS Appeals: New Evidence & Theories

Truck Driver Expenses Not Subject to Higher Substantiation

The absence of records results in the disallowance of tax deductions and credits on audit.  This is particularly true for expenses that are subject to the higher substantiation requirement in Section 280F, such as travel expenses.  In Baker v. Commissioner, T.C. Memo. 2014-122, the court considered whether a truck driver’s transportation expenses are subject to the…Continue readingTruck Driver Expenses Not Subject to Higher Substantiation

Truck Expenses Not Deductible Due to Inadequate Mileage Log

In Houchin v. Commissioner, T.C. Summary Opinion 2014-29, the U.S. Tax Court concluded that truck expenses were not deductible as the mileage log did not note the locations the taxpayer traveled to. Facts & Procedural History  Mr. Houchin worked as a truck driver, but was unemployed in 2010. He collected unemployment compensation. Mr. Houchin also…Continue readingTruck Expenses Not Deductible Due to Inadequate Mileage Log

IRS Announces Significant Changes to Audit Process

The Large Business & International or LB&I division of the IRS recently announced significant changes to the way its IRS auditors gather information from taxpayers. These announcements were made by directives issued by the LB&I Commissioner to all LB&I agents, which makes it mandatory for IRS agents to follow the directives. Reasons for The Changes…Continue readingIRS Announces Significant Changes to Audit Process

IRS De-Coordinates All Coordinated Issue Papers

The IRS de-coordinated its remaining Coordinated Issue Papers yesterday. This is the final step in the IRS ending its coordinated issue or tiered program. The IRS’s coordinated issue or tiered program was how the IRS was identifying and working challenging tax issues that presented compliance problems. Coordinated Issue Papers were instructions for IRS auditors on…Continue readingIRS De-Coordinates All Coordinated Issue Papers

Car and Truck Expenses Allowed Based on Mileage Not Actual Costs, Absent Records

In Aivatzidis v. Commissioner, T.C. Summary Opinion 2013-105, the U.S. Tax Court concluded that a professional driver could deduct expenses based on mileage, but not for actual expenses. This case provides an example of why drivers should compute car and truck expenses based on mileage if they do not have sufficient records. Facts & Procedural…Continue readingCar and Truck Expenses Allowed Based on Mileage Not Actual Costs, Absent Records

Example of How the IRS Evaluates Offer in Compromise for Doubt as to Collectibility

In Zumo v. Commissioner, T.C. Summary Opinion 2013-66, the U.S. Tax Court concluded that the IRS was correct in rejecting an offer in compromise based on doubt as to collectibility. The case provides a good overview of the IRS collection process and how the IRS evaluates offers in compromise. Facts & Procedural History Dr. Zumo…Continue readingExample of How the IRS Evaluates Offer in Compromise for Doubt as to Collectibility

IRS Closing Agreement Valid Even If Not Reviewed by the Joint Committee on Taxation

In AM 20133301F, the IRS addressed the validity of a closing agreement that was not submitted to the Joint Committee on Taxation or JCT for review prior to signing the agreement. The Facts In The Ruling Were As Follows: The taxpayer was an insurance company whose tax returns were being audited by the IRS. The…Continue readingIRS Closing Agreement Valid Even If Not Reviewed by the Joint Committee on Taxation

About IRS Appeals AJAC Project

The IRS Office of Appeals just released a memo describing its changes pursuant to its Appeals Judicial Approach Culture (AJAC) project.  These changes do not really break new ground, but they address a few key issues that are often in dispute in appeals cases. About the IRS Office of Appeals The IRS Office of Appeals is…Continue readingAbout IRS Appeals AJAC Project

Fashion Retailers Business Expenses Disallowed as Routine Substantiation Case

In Heinbockel v. Commissioner, T.C. Memo. 2013-125, the U.S. Tax Court considered a routine substantiation case and disallowed business expense deductions for a fashion clothing retailer. This case presents an opportunity to consider how to present routine substantiation cases to the IRS and to the courts. Facts & Procedural History Mrs. Heinbockel was in the…Continue readingFashion Retailers Business Expenses Disallowed as Routine Substantiation Case

IRS Levy on Stocks, IRS Has to Credit Taxpayers for Loss

When the IRS levies or takes property from the taxpayer, the taxpayer has the right to request that the property be sold within 60 days. In Zapara v. Commissioner, 126 T.C. 215 (2005), aff’d, 652 F.3d 1042 (9th Cir. 2011), the U.S. Tax Court ordered the IRS to credit $47,501.06 to the taxpayer for the…Continue readingIRS Levy on Stocks, IRS Has to Credit Taxpayers for Loss

Taxpayer Use of Estimates for Deductions

Can you use publicly available sources of statistical information when you have no records to support the amount of your expenses?  The court addressed this in Murray v. Commissioner, T.C. Summary Opinion 2012-66, which involved the IRS’s use of third party statics. Facts & Procedural History Mr. Murray worked as a truck driver for National Freight,…Continue readingTaxpayer Use of Estimates for Deductions

Offer in Compromise Rejected Where Records of Household Member Not Provided

In Winters v. Commissioner, T.C. Memo. 2012-183, the U.S. Tax Court concluded that the IRS correctly rejected an offer in compromise submitted based on doubt as to collectibility based in part on the taxpayer not providing records to establish the income of a person who resided in his home. Facts & Procedural History Mr. Winters…Continue readingOffer in Compromise Rejected Where Records of Household Member Not Provided

Court Determines What Truck Driving Expenses Are Deductible

In Nolder v. Commissioner, T.C. Summary Opinion 2012-50, the U.S. Tax Court examined a number of different expenses incurred by a truck driver to determine which expenses were deductible. This case provides a good overview of the typical expenses truck drivers incur that are and are not deductible. Facts & Procedural History Mr. Nolder was…Continue readingCourt Determines What Truck Driving Expenses Are Deductible

IRS Does Not Have to Hold Open CDP Hearing to Include All Tax Years

In Williams v. Commissioner, T.C. Memo. 2009-159, the U.S. Tax Court concluded that the IRS did not abuse its discretion by failing to hold open a collection due process or CDP hearing request pending the assessment of tax in and consolidation of other tax years with the current CDP hearing request. Facts & Procedural History …Continue readingIRS Does Not Have to Hold Open CDP Hearing to Include All Tax Years

Innocent Spouse Relief Granted Despite Knowledge of Error on Return

Innocent spouse tax relief can provide a remedy for spouses who are liable for taxes reported on a jointly filed income tax return.  It is an equitable remedy.  But is it available if the tax is due to an obvious error on the tax returns that the spouses both signed?  The court addressed this in Denton…Continue readingInnocent Spouse Relief Granted Despite Knowledge of Error on Return

Truck Driver Not Entitled to Deduct Meal and Supply Expenses

In Elsayed v. Commissioner, T.C. Summary Opinion 2009-81, the U.S. Tax Court reviewed meal and unreimbursed expenses incurred by a truck driver. This is a common tax problem for truck drivers. This case shows the difficulties truck drivers have in capturing and substantiating their expenses for tax purposes. Facts & Procedural History  Elsayed was employed…Continue readingTruck Driver Not Entitled to Deduct Meal and Supply Expenses

Offer in Compromise: Documenting the Value of Assets

The IRS carefully examines the value of the taxpayer’s assets when it considers whether to accept an offer in compromise based on doubt as to collectiblity. Even a few dollars can result in a rejected offer. Substantiation is key. The Wright v. Commissioner, T.C. Memo. 2008-259, case is an example. It involves a $2,000 offer…Continue readingOffer in Compromise: Documenting the Value of Assets

Abate Tax Penalties for Anxiety & Depression for 911 Attacks

Can tax penalties be abated for anxiety and depression due to the death of a spouse to cancer and the September 11, 2001 terrorist attacks on the World Trade Center? The court addressed this in Kwosh v. Commissioner, T.C. Memo. 2008-204, in light of the 10 percent addition to tax on early retirement distributions and…Continue readingAbate Tax Penalties for Anxiety & Depression for 911 Attacks

IRS Guidance on Whistleblower Informant Program

The IRS whistleblower program allows taxpayers to obtain payment from the IRS for providing information about alleged tax wrongdoing by other taxpayers.  How the IRS has administered the program has drawn criticism from politicians, taxpayers, and others.  The IRS’s recent guidance aims to address these criticisms.  It provides a three-step process for handling whistleblower claims: 1.…Continue readingIRS Guidance on Whistleblower Informant Program

Taxpayer Cannot Rely on Incompetent Tax Attorney

The IRS can impose a number of different types of penalties.  It often does so when it should not.  The recent Wilson v. Commissioner, T.C. Summary Opinion 2008-91, case considers a situation where the court concludes that the tax attorney was incompetent and could not be relied on to avoid the imposition of penalties. Facts &…Continue readingTaxpayer Cannot Rely on Incompetent Tax Attorney