In Uncategorized on 10/27/2011 at 17:52

“Thoroughness settles the question in more cases than any other one thing as to whether or not a person will be successful. A lawyer needs to be thorough in the first place because it is only fair to the state which has given him his license to practice.” Thus spake Adelbert Moot, a leader of the Buffalo (N.Y.) Bar, at the first Irvine Foundation lecture at the Cornell Law School (my alma mater), on May 29, 1914 (and no, I was not in attendance).

This is yet another lesson to the trial attorneys for the IRS; see also my blogposts “Read the Law”, 9/12/11, and “Don’t Quote Me”, 3/30/11. Judge Haines passes over without comment yet another illustration of incomplete trial preparation in Denise Kilker, 2011 T.C. Mem. 250, filed 10/27/11.

Denise ran a printing business and provided printing in exchange for stock. She didn’t bother to file a return for the year she acquired $90K in taxable capital gains and $100K in compensation for services, via stock-for-services deals, nor did she trouble to pay estimated tax.

The details are simple. Denise never filed but got the stock and sold some. IRS conceded what she sold was long-term capital gains. What she got was compensation for services (barter), therefore ordinary. Of course, the issuer of the stock-for-services sent Denise a 1099-MISC showing the $100K, and her broker sent her a 1099-B for the $90K capital gains.

IRS very kindly prepared Denise’s return for her pursuant to Section 6020(b), and sent her a SNOD, both at no extra charge. Denise has no defense to the capital gains portion of the assessed tax. She claims the stock-for-services should be charged to her wholly-owned corporation and was used to pay corporate expenses. But the stock certificates were issued to her I/T/F her kids, never to her corporation; nor did she put in evidence any Form 1120 for her corporation showing the income or expenses.

So far IRS has had it all their own way. IRS gets the Section 6651(a)(1) failure to file addition to tax, as Denise never claimed she filed any personal return.

Now here IRS comes unglued. Judge Haines speaking: “Respondent also determined that petitioner is liable for the addition to tax imposed by section 6651(a)(2) for failure to pay the amounts of tax shown on her 2004 Federal income tax return. Respondent did not introduce the 2004 substitute for return filed on behalf of petitioner pursuant to section 6020(b), nor did respondent introduce a Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, for 2004. See Cabirac v. Commissioner, 120 T.C. 163, 172-173 (2003). Thus, respondent has not produced sufficient evidence that petitioner is liable for the section 6651(a)(2) addition to tax for 2004.” 2011 T.C. Mem. 250, at pp. 9-10.

This is not a case where a sly attorney or Tax Court admittee comes up with a great argument or a blistering cross-examination, and stumps IRS trial counsel. This is a case where what should have gotten onto the document checklist, and into the trial notebook, never got to either, and thus never got into evidence.

Adelbert, thou should’st be living at this hour.

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