Attorney-at-Law

MINER SWITCH

In Uncategorized on 09/27/2016 at 16:58

Miner switch isn’t minor. And an IRS agent’s oral instruction to change your accounting method isn’t Commissioner’s consent. And that holds true even when you’re mining in the Alaskan wilderness.

Hear now the tale of Carey Clayton Mills, 2016 T. C. Memo. 180, filed 9/27/16, as told by Judge Goeke. IRS had three (count ‘em, three) attorneys on this case, which seems to savor of overlawyering.

IRS dropped the accuracy chops. “After concessions, the issue for decision is whether the allowable deduction for legal and professional services (legal fees) for [year at issue] should be $12,007 or $77,823.” 2016 T. C. Memo. 180, at p. 2.

Carey Clayton had legal and professionals, and they did match those amounts. The only question is, when were they incurred for tax purposes?

Carey Clayton was running his digging and delving via a disregarded LLC, so he used the cash method for the first five years of his operations. In year six, he first filed cash, showing $12,007, but then amended to show $77,823.

IRS pounced, but got the categories mixed up, claiming the $77,823 was for repairs and maintenance. When this got straightened out, it didn’t change the bottom line, so Carey Clayton petitions.

Basics. Section 446 says you pay taxes how you compute income. Once you pick it, you’re stuck, unless IRS lets you change. This you do by filing Form 3115 for year at issue, and awaiting the blessing from above.

There is a shortcut, Commissioner’s automatic (Rev. Proc. 2011-14, 2011-4 I.R.B. 330), and nonautomatic (Rev. Proc. 92-27, 1997-1 C.B. 680 97).

But if you use none of the foregoing, just saying “an IRS guy told me to do it” doesn’t cut it. Carey Clayton never got the go-ahead, neither automatic or nonautomatic.

No go-ahead means you go back to your previous method.

So it isn’t a minor switch, even if a miner did it.

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