In Uncategorized on 10/02/2015 at 19:57

And Then There Are Motions

IRS can dream up some good motions, but here’s one that really sets a high bar. It involves an old acquaintance, Marvel Thompson.

Remember Marv? Well, if not, check out my blogpost “Holding?”, 12/8/14. Now you remember Marv was fighting a levy for interest IRS claims he owed, but he claims he couldn’t pay the underlying tax timely because the US Marshals Service grabbed all his cash.

Marv was serving a 45-year stretch in the Fed pen. And he’s still there, and likely to be going no place soon.

Well, IRS, denying that the US Marshals’ grab in any way causes an abatement of interest, has a new twist, and it’s a beauty. The case is on for trial later this month.

I’ll let that Obliging Jurist, Judge David Gustafson, tell the story.

“…respondent (the IRS) filed a pretrial memorandum that states, ‘Respondent plans to file a Motion to Dismiss for Lack of Prosecution in the event that petitioner or his representative fail to appear at the trial calendar’, but that also states, ‘Petitioner is currently incarcerated in Federal Prison and is carrying out a 45 year sentence.’ The Court assumes that Mr. Thompson will not appear…; but without prejudging a motion not yet filed and explained, the Court considers it unlikely that it would dismiss this case on a motion filed by the Federal Government complaining that petitioner failed to appear before the Tax Court because the Federal Government is holding him in prison. It is therefore

“ORDERED that respondent consider using the available time to prepare not a motion to dismiss for failure to prosecute but rather a motion for summary judgment, since it may be that some or all of the issues in this case involve no genuine disputes of material fact and could be addressed by the parties filings, without requiring Mr. Thompson’s appearance in person.” Order, at p. 1.

Judge Gustafson is clearly a gentle human being. If I were the Judge…but no, that’s why I could never be a judge.

I almost forgot, because it’s nearly 2 a.m. here in Berlin. The order is Marvel Thompson, Docket No. 29498-12, filed 10/2/15.


In Uncategorized on 10/01/2015 at 19:31

The exclusions from taxable income of IRA distributions are few and narrow. There are no hardship exceptions, or medical expense exceptions except for expenses paid by taxpayer, for self, spouse or dependent, and then only to extent exceeds the 7.5% or 10% AGI limitation. And while reliance on expert may save taxpayer the penalties, it will not save the tax.

Here’s another example on a dull day, Cheryl Lynn Ireland, 2015 T. C. Sum. Op. 60, filed 10/1/15.

STJ Daniel A. (“Yuda”) Guy tells the story.

Cheryl Lynn is under the 59-1/2 plateau. Thus the Section 72(t) additional tax on her IRA distribution she used to pay her son’s medical expenses.

The problem is her son isn’t a dependent. “Likewise, section 72(t)(2)(B) limits the imposition of additional tax to the extent that retirement plan distributions do not exceed the amount allowable as a deduction under section 213 (i.e., ‘the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent (as defined in section 152 * * *)’). The record reflects that petitioner did not claim her son as a dependent for the year in issue and fails to demonstrate that her son met the definition of a dependent provided in section 152.” 2015 T.C. Sum. Op. 60, at p. 6.

Cheryl Lyn said her accountant told her it was OK to leave out the IRA distribution. That’s definitely a “no go.”

“Petitioner’s alleged reliance on the mistaken advice of her accountant does not excuse her from the obligation to include the IRA distribution in her taxable income for the year in issue or to pay the appropriate amount of Federal income tax and additional tax related thereto. See United States v. Boyle, 469 U.S. 241, 252 (1985); De Aycardi v. Commissioner, T.C. Memo. 1997-308, slip op. at 7-8 (‘Reasonable reliance on an agent may constitute a possible defense to penalties but not to the underlying tax [liability].’).

“Petitioner maintains that it would be inequitable to hold her liable for the additional tax due. We have considered similar claims in the past and have observed that there is no authority in the Code, the legislative history, or caselaw for a general financial hardship exception to the imposition of the 10% additional tax on early distributions.” 2015 T.C. Sum. Op. 60, at p. 7.

Tax Court doesn’t rewrite the law, Cheryl Lynn.


In Uncategorized on 09/30/2015 at 09:13

Sitting in Copenhagen Lufthavn on my way to Berlin, with another hour’s layover, I peruse a fine example of Judge Halpern’s inventiveness, as he finds jurisdiction to review a CDP where taxpayer only received the Section 6303 notice years after the nonpayment of payroll withholdings, deftly avoiding the taxpayer’s SOL defense, finds the AO blew it on additional taxes, but sustains colleciton for most of the rest.

After a night upright and cramped on a Boeing 787 Dreamliner (no dreams for me), I may misstate some of Judge Halpern’s finer points, but you can read all about it in Scott Labor, LLC. 2015 T. C. Memo. 194, filed 9/29/15.

Scott was out of business for the last year at issue, but still owes for the previous years because its managing members, Scott Borre and Mrs. Borre (apparently she has no other name) overstated advance earned income credits.

This even though the Borres were personally audited for one of those years with no change, and even though Scott Labor is a disregarded entity, and even though the NITL was sent to the disregarded entity at the wrong address.

The previous audit doesn’t estop IRS. And if a previous notice went to the wrong address, the Borres got the later notice and timely petitioned before IRS started collection proceedings.

And as to the nature and requirements of the Section 6303 notice, see my blogpost “Jet Lag?” 12/19/11. How appropriate that Judge Halpern cites the Nakano case.

The AO got confused and confounded by the separate IRS service centers and their dubious records, so the Borres duck most of the penalties and additions to tax.

But they do owe some tax, so it’s off to a Section 155 beancount.


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