In Uncategorized on 08/09/2017 at 15:56

Aeschylus Got It Right

This is one for the record book. A lawyer is in a twenty-one (count ‘em, twenty-one) year battle with IRS over back income and withholding, fights it out in Tax Court, enters into an installment agreement, complies 100%, and (get this) claims misapplication of payments that would satisfy everything in full.

IRS trots out the old Section 6402 “we can apply overpayments how we like.”

Except this isn’t an overpayment. This is right on the nose, spot on, thus far and no farther.

And the lawyer (now retired and hoping for peace at long last) draws Judge Gerber. No friend of the taxpayer he.

Take a deep breath. Let it out. Take another. Hold it for one second.

The lawyer wins! One hundred percent!


The case is Charles Edward Fagan, 2017 T. C. Sum. Op. 61, filed 8/9/17.

Mr Fagan wanted to retire in 2008, with his past marital and tax woes behind him. He duked it out with IRS, they stipped to a deal, and he stuck by it. Paid every centavo, kopek, and zloty.

But IRS continually bombarded Mr Fagan with notices and bills, and seized cash from his bank account (which they refunded), all for taxes and withholding that he had paid.

Finally, the fight boils down to $2300. IRS claims Mr Fagan owes the $2300, Mr Fagan claims he owes nothing.

Enter Judge Gerber.

“The record in this case reveals a convoluted and complex relationship between respondent’s collection offices and petitioner.  The record of these interactions consists of several hundred pages of correspondence, transcripts, reports, and notes of the parties.  Although the parties had settled one collection due process case and entered into an installment agreement with which petitioner complied, the Service was not able to adjust its records to properly reflect the resolution; and it continued to issue notices and seize property in satisfaction of tax liabilities that had been settled and satisfied.  The interaction and confusion began in 2006 and has continued through the instant collection due process case.

“The only position advanced by petitioner is that this complex series of transactions between him and the Government results in no collectible outstanding 2011 income tax liability.  The main thrust of respondent’s argument is that the Service has absolute authority to apply overpayments in any manner it chooses. Petitioner counters that his is not a question of the application of an overpayment but involves the misapplication of payments and a duplication of paid tax liabilities resulting in a $2,900 difference from respondent’s records that should be used to satisfy the 2011 income tax liability.” 2017 T. C. Sum. Op. 61, at p. 7.

This sort of thing is why the IRS gets bad press. And why bloggers like me stay in business.

And why Judge Gerber gets to play the hero.

“Respondent’s position that this case involves an overpayment is incorrect. There were payments that were made in satisfaction of a series of outstanding tax liabilities.  There were misapplications of payments that petitioner and respondent had agreed were to be applied against specific liabilities.  Such payments are not ‘overpayments’ which are covered by section 6402 as they were payments that respondent agreed to apply against specific tax liabilities.  One of those tax liabilities had been fully satisfied.  In addition, respondent applied one of petitioner’s refunds to accounts that had been satisfied.  These errors and misapplications totaled $2,900, an amount sufficient to satisfy the 2011 income tax liability respondent seeks to collect.” 2017 T. C. Sum. Op. 61, at p. 9.

Mr Fagan wins.

Note to the Jersey Boys: Many thanks for the intriguing CLE/CPE yesterday. Note also that people fight in Tax Court not merely for money, but for the right to be heard. Your case of the sixty buck ticket to justice for a $23 deficiency would be silly if the issue were only $23. But it often isn’t. It’s about the right to be heard, whether in the right or in the wrong. Aeschylus put the words in the mouth of Prometheus Bound, as the play ends with him chained to the collapsing rocks: “Behold I am wronged!”



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