In Uncategorized on 08/18/2014 at 19:13

No, not the 1971 Clint Eastwood thriller; this is the story of Misty S. Doonis, 2014 T. C. Memo. 168, filed 8/18/14, as told by Judge Lauber.

Misty missed two years’ worth of 1040s, so IRS obligingly prepared SFRs for her and gave her SNODs for each at no extra charge. Misty never bothered to petition either SNOD, so IRS assessed tax and gave Misty a Final Notice of Intent to Levy and Notice of Your Right to a Hearing.

This gets Misty’s attention, and she asks for a CDP. “In her request, petitioner asked that her account be placed in currently not collectible (CNC) status or, alternatively, that the IRS consider a collection alternative in the form of an installment agreement or offer- in-compromise.” 2014 T. C. Memo. 168, at p. 3.

The SO asks Misty for a Form 433-A wage earner and SE tell-all, which Misty proffers timely. OK so far.

One minor problem. In addition to the two unfiled years, Misty has five (count ‘em, five) other unfiled years, so before the SO will hear Misty’s plea, she must come up with the returns.

And she does. All but one.

SO says that Misty’s income well exceeds local and national standards, per the returns she did file (each of which show a hefty balance due).

“Petitioner requested an installment agreement or an offer-in-compromise. Both collection alternatives require that the taxpayer be in full compliance with filing required tax returns. Petitioner concedes that she did not file a tax return for 2005.” 2014 T. C. Memo. 168, at p. 7. (Citations omitted).

It doesn’t get better. “Petitioner first argues that the SO should have excused her failure to file this return because ‘she did not have sufficient records to file a tax return for 2005.’ This excuse is unavailing. Taxpayers are required to keep and produce adequate records that enable the Commissioner to determine the correct tax liability. This is an affirmative duty placed on the taxpayer, and an unexplained failure to maintain adequate records is no defense to the duty to file a required return.” 2014 T. C. Memo. 168, at pp. 7-8. (Citations omitted).

Ya gotta give Misty and her lawyers credit for trying.

“Petitioner next contends that she had ‘no reported income for tax year 2005 per the IRS wage and income transcripts.’ Petitioner is a self-employed medical recruiter who earned Schedule C business income averaging in excess of $78,000 for 2006-2012. On her Schedule C for 2006 she did not check the box for designating that she ‘started or acquired this business during 2006.’ This implies that she was engaged in her medical recruiting business during 2005. Petitioner has set forth no specific facts, by affidavit or otherwise, tending to show that she did not work in her business during 2005; that she earned no income in 2005; or that the income she earned in 2005 was below the threshold requiring her to file a tax return. See sec. 6012(a).

“The fact that the IRS transcript of petitioner’s 2005 account shows no third-party reporting of payments to her does not imply that she received no income for 2005. Self-employed individuals are not subject to reporting on Form W-2, Wage and Tax Statement, and they often are not subject to reporting on Form 1099-MISC, Miscellaneous Income, either. Petitioner has set forth no specific facts, by affidavit or otherwise, indicating how many clients she had, how those clients paid her, and whether those clients generally supplied the IRS with Forms 1099-MISC reporting the income that she received.” 2014 T. C. Memo. 168, at pp. 8-9.

Finally, Misty and lawyers claim the IRS Manual says IRS won’t ask for returns more than six years old, and the missing return is one such. Great, says Judge Lauber, but “We have previously found no abuse of discretion when an SO required a taxpayer to file returns going back more than six years. The IRM, which includes Policy Statement 5-133, does not have the force and effect of law but provides only direction and guidance.” 2014 T. C. Memo. 168, at p. 9. (Citations omitted).

Rather like the Pirates of the Caribbean, the IRS Manual and Policy Statements therein set forth are “guidelines…aspirational goals.”

So Misty has to pay up. The SO was right in not putting Misty in CNC or putting her on  the installment plan, because she has money.

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