In Uncategorized on 08/15/2016 at 16:18

I expect the trade press and blogosphere will pick up today’s opinion on the remands from Second and Ninth Circuits to Tax Court of Diebold and Salus Mundi, two of the early trans-fat cats in the Section 6901 transferee liability herd. It was another roundy-rounder liquidating distribution, with the only argument being the short-year as a cutoff for liability. Tax Court didn’t buy it, as it was all of a piece with the main dodge.

I was more interested in twice-burned Carolyn Rogers, 2016 T. C. Memo. 152, filed 8/15/16, a real hard-luck story.

Carolyn got burned out of her New York City coop apartment twice, had to flee the “dehumanizing” YWCA to go couch-surfing, and finally fell off a subway platform and fractured her skull.

She’d always filed timely and paid up before. In the year at issue, when all these various calamities had peaked, she thought that she could take the casualty loss from the second burn-out in the year she got the short payment from her long-suffering insurer.

Liberty Mutual, you did good.

But IRS wants to nail Carolyn for Section 6651(a)(1) late filing and Section 6651(a)(2) late paying.

And who better to bring justice to poor Carolyn but that eminent law firm, to which I refer as The Jersey Boys? They settle out the unpaid tax, leaving only the two additions aforesaid.

Judge Colvin is persuaded.

“Petitioner correctly handled her tax filings and payments before [the year at issue]. Petitioner testified that her losses from the [second] fire exceeded $150,000. She also testified that she believed her loss was deductible for the year she settled the insurance claim and that her casualty loss (to the extent not compensated by insurance) more than offset her [year at issue] income, obviating the requirement that she file a…return.” 2016 T. C. Memo. 152, at p. 8.

The usual late-filer, late-payers targets are high-level business types or chronic non-filer, non-payers. Carolyn was neither.

Carolyn was mistaken, but honestly mistaken. She got hit because there was no reasonable chance of recovery for the greatest part of the second-fire loss. Therefore that loss had to be recognized in the year of the fire, not year of settlement with insurer, hence the deficiency. Trying that issue was dicey at best, so settling was wise.

Carolyn’s conditions, catalogued by Judge Colvin, give ample facts and circumstances to conclude that nonfiling wasn’t a result of “conscious, intentional failure or reckless indifference to her tax filing obligations.” 2016 T. C. Memo. 152, at p. 11.

And the language of Section 6651(a)(2) late-payment is identical to the Section 6651(a)(1) nonfiling, so Carolyn is off the hook on that one, too.

I can’t think the deficiency here warranted a big fee, and the petitioner certainly wasn’t a last-three-digits highroller.

So a Taishoff “good job, first class” to The Jersey Boys.


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