Attorney-at-Law

PAY TO PLAY?

In Uncategorized on 01/07/2016 at 17:16

OK, But Don’t Give It Away

I’m not citing Hazem Garada and Noha Elghosein, 2016 T. C. Sum. Op. 1, filed 1/7/16 for the the issue of the Dubai bank account that never made it onto their return but for which Haz and No wanted deductions for travel expenses. Neither am I going into Judge Buch’s analysis that real estate taxes paid by a Sub S are passed through to the shareholders thereof as a distribution from the S Corp., whether taxable or not, and are deductible by them on their personal return.

Rather, I’m going straight to the penalty kicks, of one of which IRS gets a “maybe,” and the other two go over the net.

The “maybe” depends upon whether, after the Rule 155 beancount, the deficiency as finally determined for one of the three years at issue jumps the five-and-ten barrier.

Here’s the story on the over-the-net kicks.

For the other two years at issue, “…because the threshold for a substantial understatement of income tax is not met, the Commissioner instead argues that Mr. Garada and Ms. Elghosein were negligent or disregarded rules or regulations. The term ‘negligence’ includes any failure to make a reasonable attempt to comply with the provisions of the Code, and the term ‘disregard’ includes any careless, reckless, or intentional disregard.

“The Commissioner did not provide any evidence that the imposition of the penalty was justified…. The Commissioner did not show that Mr. Garada and Ms. Elghosein failed to keep adequate books and records or failed to properly substantiate the items in question for those years. Instead, the Commissioner argues that because Mr. Garada and Ms. Elghosein conceded and paid their deficiencies…, they are liable for section 6662(a) accuracy-related penalties for negligence or disregard of rules or regulations.” 2016 T. C. Sum. Op. 1, at p.19. (Footnotes omitted).

Now before anyone gets their Calvin Kleins in a Carrick Bend, no one is saying that if you pay to cut off the running of interest, you’ve conceded a 20% chop. Note, Haz and No did concede they owed some tax for both years.

Judge Buch is much kinder than I would be, which is why I’m not a judge. I’m too sardonic, I expect.

“Although we may take concessions into account in determining whether the Commissioner has carried his burden, the Commissioner’s argument here is too broad. Conceding that a position is not allowable is not the same as conceding that it was taken negligently or with disregard of rules or regulations.” 2016 T. C. Sum. Op. 1, at p. 19-20 (Footnote omitted).

Takeaway-  Practitioner, if you tell the client to pay, remember to stipulate you’re conceding nothing.

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