In Uncategorized on 10/03/2019 at 17:11

Elena Lea Morgan Weschenfelder and Frederick Burkhart Weschenfelder, 2019 T. C.  Memo. 133, filed 10/3/19, were analyzing intelligence in Iraq and Germany. But some three (count ‘em, three) years’ worth of their US tax returns never got to IRS.

Almost as obliging as Judge David Gustafson, IRS gave El and Fred SFRs, and non-filing and non-paying additions, all at no extra charge. When El and Fred sent in their returns eight (count ‘em, eight) years after the SFRs, IRS abated the taxes shown on the SFRs, and gave El and Fred SNODs for what they reported. El and Fred claim Section 911 abroad status.

Judge Mary Ann (“S.E.C. = “She Eschews Cognomens”) Cohen has this one. IRS drops the weight-of-the-attachments test, to focus on the late election, as permitted by Reg. 1.911-7(a)(2)(i). And that reg has survived previous validity challenges.

El and Fred claim they sent the returns, but couldn’t get proof of mailing from Iraq. But they were back home in the Lone Star State in time to file from there as to two of the years at issue.

But only Reg. 1.911-(7)(a)(i)(2)(D) will avail El and Fred.

“…it applies provided:

“(1) The taxpayer owes no federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached either before or after the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion; or

“(2) The taxpayer owes federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached before the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion.

“(3) A taxpayer filing an income tax return pursuant to paragraph (a)(2)(i)(D)(1) or (2) of this section must type or legibly print the following statement at the top of the first page of the Form 1040:  ‘Filed Pursuant to Section 1.911-7(a)(2)(i)(D).’” 2019 T. C. Memo. 133, at p. 9.

There’s a provision in  Reg. 301.9100-3 for a PLR even if tax is owed after IRS discovers failure to elect, but El and Fred didn’t ask for one. Likewise, Judge Cohen doesn’t decide if conceded unreported income would count for putting El and Fred over the owing-tax line.

“Petitioners argue that application of credits from [other subsequent years] eliminated the tax owed for [first two years at issue].  Subsequent credits to a taxpayer’s account do not change the amount owed on a return; they merely reflect amounts deemed paid.  Petitioners are not entitled to bootstrap their argument that tax was not owed by asserting that tax reported as owed was subsequently paid. The reported liabilities for [first two years at issue] disqualify their elections of the foreign earned income exclusion for those years because their belated filings do not qualify under subdivision (i)(D)(1).” 2019 T. C. Memo. 133, at p. 11.

IRS concedes the last of the years at issue, assuming the Section 911 exclusion applies. But El and Fred never typed the magic language of Reg. 1.911-7(a)(2)(i)(D)(3), “filed pursuant to 1.911-7(a)(2)(i)(D).”

They claim substantial compliance, but Judge Cohen says no.

“We have also considered whether petitioners’ late returns substantially complied with the regulations.  Respondent argues that the doctrine does not apply because the applicable standards are established in section 1.911-7(a)(4), Income Tax Regs.  In any event respondent argues that the doctrine of substantial compliance does not apply where the failure to comply fully relates to the substance or essence of a statute and the statute or regulation provides the manner in which an election is made with detailed specificity.

“The regulations in this case are detailed and specific and are not lacking in clarity.  Cf. Estate of McAlpine v. Commissioner, 968 F.2d 459, 462 (5th Cir. 1992) (holding that a taxpayer who exercises due diligence and good faith in complying with an unclear regulation may be held to have substantially complied), aff’g 96 T.C. 134 (1991).  They include unambiguous provisions, one of which was not complied with by petitioners.” 2019 T. C. Memo. 133, at p. 13.

This is not filling out a complicated form. It is a material statement, especially when the returns come in eight years late. Moreover, El and Fred stated throughout their home was in Texas.

IRS had the Boss Hossery for the additions, and El and Fred had no good excuses.

Takeaway- If filing late, the magic language can save the day. Also, if abroad, say so.


  1. […] Lew Taishoff has Abroad At Home – Eight Years Late […]


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