Archive for August, 2013|Monthly archive page


In Uncategorized on 08/01/2013 at 17:47

A common misunderstanding among Tax Court petitioners is who decides what is a small claims case. The $50K number is easy enough, but of what is it comprised?

Well, Section 7463(a) teaches us that it’s the amount of tax and penalties stated in the SNOD, less any concessions made by the petitioner.

So IRS sets the bar for what is a small-claimer, and what is a full-dress Tax Court case.

In John M. Germano & Carol J. Germano, Docket No. 12100-13S, filed 8/1/13, Ch J Colvin elaborates. IRS made a motion to drop the small-claims “S” from the docket number, because the deficiency was $65K. John & Carol answered “no amount Due [sic] in excess of 50,000″, Order, at p. 1.

IRS responded by saying that John & Carol had a loss on a stock sale in the year at issue, and IRS and John & Carol were trying to reach an agreed decision.

OK, says Ch J Colvin, but John & Carol conceded nothing, and IRS claimed $65K, so that’s the amount in dispute, and once the amount in dispute is over $50K, no small-claims treatment.

All is not lost, John & Carol: “We note that removing the small tax case designation does not preclude settlement of this case and that, if for any reason, the case should proceed to trial, petitioners could, prior to trial, move to convert this case to a small tax case upon demonstration that the amount in dispute does not exceed $50,000.” Order, at pp. 1-2.

But until then, it’s not a small-claimer.


In Uncategorized on 08/01/2013 at 16:34

Judge Paris cuts the corner close with a distinction between Section 6664 reasonable reliance and Section 6662 negligence in Donald L. Rogers and Vyon M. Rogers, 2013 T. C. Memo. 177, filed 8/1/13.

It’s another tale from the parsonage (see my blogpost “Tales from the Parsonage”, 7/22/13), except once again it isn’t a parsonage because Pastor Don’s group, Pentecostals of Wisconsin (PoW), never did the Section 107 mambo as to the $35K in mortgage and utility payments Pastor Don received for the home he and Vyon owned.

But PoW did incorporate Pastor Don in Nevada, as a “corporation sole”, and Pastor Don did sign a “Vow of Poverty, Statement of Faith”.

Now of course none of this exempts Pastor Don from income tax or self-employment tax (as he never timely filed Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, and the time limit is strictly enforced).

I’ll leave the legalistic unpacking to Judge Paris. Simply put, the poverty gig would work if the clergyperson was paid by a third party, the pay was assigned by the clergyperson to the religious order, and the order fed, housed and clothed the clergyperson.

Judge Paris: “Here, petitioners did not receive a salary from a third party and did not remit any income to PoW by assignment. Mr. Rogers provided services to PoW and received compensation for those services in the form of payments PoW made on petitioners’ behalf. The critical difference is that, in this case, there was no income transferred to PoW from petitioners pursuant to their vow of poverty. The mortgage payments PoW made were applied toward a house owned solely by petitioners and titled in petitioners’ names. Similarly, the credit card payments and utility payments PoW made on behalf of petitioners served only to benefit petitioners in meeting their basic living expenses. It would be a mischaracterization of the facts to state that petitioners were paid a ‘salary’ as agents of PoW and that this salary was assigned for the benefit of PoW when, in fact, no such salary was paid and all income issued to petitioners was used solely for their benefit. Accordingly, the authorities cited by petitioners are inapplicable in this particular case.” 2013 T. C. Memo 177, at p. 9.

OK, income tax and SE are off the table. How about penalties?

Well, Pastor Don and the PoWs didn’t rely on advice from the Nevada outfit they hired to incorporate Pastor Don; they had the plan in place and just hired the Nevadans to make it happen. Besides, trying the corporation sole dodge while not even applying for exemption from SE tax does not show good faith reliance. So Section 6664(c)(1) is also off the table.

But how about the negligence penalty? If there is a substantial understatement of tax due (the five-and-ten, $5000 or 10%) after the Rule 155 bean-count, then the penalty will apply.

But Judge Paris is generous: “While the Court finds that petitioners’ mistake of law in this instance was not reasonable for the purposes of establishing reasonable cause, the Court will not go so far as to say that petitioners acted with negligence or disregard of rules and regulations in the preparation of their 2007 return. Accordingly, if petitioners’ understatement of income tax for tax year 2007 does not exceed $5,000 (i.e., it is not a ‘substantial’ understatement), petitioners will not be liable for the accuracy-related penalty for an underpayment of tax attributable to negligence under section 6662(b)(1).” 2013 T. C. Memo. 177, at pp. 13-14.

Note that Section 6662 distinguishes between negligence or disregard, and substantial understatement; even if taxpayer isn’t negligent or disregardant, if you’re over the five-and-ten, you’re penalized.