I wrote recently about the cost of writing fiction about oneself; see my blogpost “Fiction Writing Costs Money,” 5/24/16.

But today, I turn to the costs of fiction writing on behalf of others, at the suggestion of Judge Gale in James A. Ericson and Rebecca A. Ericson, 2016 T. C. Memo. 107, filed 6/1/16.

IRS tries to nail Jim and Becca for unreported income, but it turns out they didn’t underreport all that much, and Judge Gale reckons that their nonexistent recordkeeping was to blame. Their deductions likewise founder on Section 274, even when they might have scaled the Cohan fence if their numbers were better. Three years were on the table per the SNOD, but two were barred by SOL, unless IRS could show fraud.

IRS wanted fraud, but can’t prove it. Clear and convincing, y’know, and IRS trial counsel didn’t have the goods.

But why is IRS after fraud, when there isn’t big money on the table?

Jim was a freelance tax preparer. And thereby hangs the cliché.

“At the time of trial, Mr. Ericson had operated a tax-related business for at least the past 30 years, preparing tax returns as part of that business for at least the last 20 years.  He became interested in preparing tax returns after taking college courses covering the concepts of income and of deductible expenses.  He later attended some seminars and established his tax preparation business shortly thereafter.  He read books on tax laws during the first four months of his business and then began preparing tax returns through his business.  During one of his business’ initial years, he maintained a second job working for a certified public accountant helping her prepare her clients’ tax returns.  During some of his business’ other years, he maintained a different second job, working as an accountant first for a construction company and later for a windsurfing company.

“Mr. Ericson prepared approximately 700, approximately 850, and over 1,000 Federal income tax returns for his clients during [the years at issue].” 2016 T. C. Memo. 107, at p. 5.

So? Often the shoemaker’s children have no shoes. Preparers often do what they’d berate their clients for doing.

Except.

The RA who audited Jim and Becca was also checking out the returns of Jim’s tax prep clients.”Mr. V’s examination of the client returns stemmed from complaints the IRS had received from local tax practitioners concerning returns they had become aware of that Mr. Ericson prepared.  Mr. V initially reviewed approximately 30 client returns and selected approximately 15 for examination.  Mr. V concluded after examining the 15 client returns that they tended to have at least one questionable Schedule C and oftentimes inflated employee business expenses and unallowable education credits.

“Mr. V concluded from the examination of the approximately 15 returns that Mr. Ericson was a ‘problem return preparer’.  As a consequence, Mr. V examined petitioners’ returns for the years at issue.” 2016 T. C. Memo. 107, at pp. 22-23. (Name omitted.)

So?

IRS trial counsel introduced evidence as two clients and two years’ worth of their returns, and none thereof were sufficient to show that Jim was a fraudster.

Maybe the complaining preparers were miffed that Jim was taking business from them. And the best they and Mr. V could turn up only established that Jim was a wee bit casual in sweating his clients and a wee bit trusting in believing what they told him.

Except.

“In reaching our conclusion concerning the probative value of the client returns that are in evidence, we are mindful that in February 2015 a U.S. District Court permanently enjoined Mr. Ericson from acting as a paid Federal tax return preparer.  See United States v. Ericson, No. 13-00551 (D. Haw. filed Oct. 23, 2013) (orders of Feb. 20, 2015, and Nov. 30, 2014).  The District Court granted summary judgment on most of the Government’s claims, and a permanent injunction, on the basis of considerably more extensive proof concerning Mr. Ericson’s return preparer activity.  See id. That additional activity is not a part of the record in this case, and we reach our decision on the basis of the record before us.” 2016 T. C. Memo. 107, at p. 39, Footnote 8.

No issue preclusion? Apparently IRS counsel didn’t argue the point very well.

But it seems the snitches were right, and they got Jim ousted as a preparer.

Writing fiction for others can be even more expensive than writing fiction about yourself.