In Uncategorized on 06/02/2017 at 16:27

I remember with fondness the old Schedule H (I think it was), which, again allowing for an old man’s faulty memory, allowed for a five-year averaging of income to permit lower taxation of windfall amounts, such as we got in the boom times years ago, when the seven fat kine were stomping their seven lean compatriots. But the 1986 Tax Reform Act put paid to that particular goody.

Though dead, it is apparently not forgotten, as another attorney tries it on in a NOD case.

Here’s Stephen C. Moore, Docket No. 4290-16L, filed 6/2/17, today’s designated hitter from Judge Morrison on an otherwise rather somnolent Friday at The Glasshouse. Really, Judge, this should have been an opinion.

Stephen is a plaintiffs’ PI lawyer (that’s Personal Injury). That work generally yields big payouts after years of getting by, and practitioners therein hope to glean enough in the out years to keep them eating until the next Big Bird drops off the goodies at the landing strip.

Well, Stephen is a trifle behind on five (count ‘em, five) years’ worth of tax. He’s not contesting liability, so it’s abuse-of-discretion after his installment deal gets bounced at the CDP. And Stephen has a table showing seven (count ‘em, seven) years of income previous to the CDP, which he averages out (after dropping out a $1.5 million referral fee he picked up along the way, claiming that was an outlier; we should all have such outliers).

Stephen claims Appeals looked at only the most recent year, but he didn’t earn that much every year.

Appeals wasn’t buying, and neither was Judge Morrison. First, Appeals looked at Stephen’s income for the three most recent years.

“…the Appeals Office considered the three most recent years. To consider more years of income might increase the reliability of an estimate of income in some circumstances. Yet income in recent years might offer a better prediction of future income than income in older years. We hold that the Appeals Office’s decision to focus on the three most recent years was a matter of judgment rather than an abuse of discretion.” Order, at p. 5.

And omitting the $1.5 million from the mix fares no better.

“Moore urged the Appeals Office to exclude the $1.5 million referral fee in calculating his…income. If the Appeals Office had excluded this fee, his [income for that year] would have been $114,425. Under the Appeals Office’s approach of estimating projected income from the lowest income of the three years …the lowest income would have been [that year’s] income–$114,425. This is low compared to other alternative predictions. For example, it is less than a third the annual future income that Moore projected–$394,954. We think the Appeals Office was within its discretion in refusing to exclude the $1.5 million referral fee from its calculations of the income for [that year]. Order, at p. 5.

An average is an average; it takes in big scores and droughts and evens them out.

So Appeals wasn’t wrong in kicking Stephen’s number.

Takeaway- Just because Stephen lost is no reason not to try income averaging where the client is in a boom-and-bust situation. Just use recent numbers (unless you can show a major error in so doing), and don’t cherrypick.



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