Attorney-at-Law

“A STRAIGHTFORWARD CASE” – NOT!

In Uncategorized on 02/12/2020 at 16:15

Ex-Ch J L Paige (“Iron Fist”) Marvel might have thought that the unreported distributions that Richard Essner, 2020 T.C. Memo. 23, filed 2/12/20, took from the IRAs he inherited from his late father via his late mother presented “a straightforward case”, when AUP (Automated Underreporting Program) electronically handed Richard a SNOD (2020 T. C. Memo. 23, at p. 4).

Except.

While Richard’s petition was pending from the AUP SNOD, Compliance Officer J (name omitted) started an audit of the same year (among others), but Richard petitioned only the one AUP year for Section 7605(b) duplicative audit violation. Initially, Officer J only looked at legals, travel and meals, and eventually gave Richard a SNOD only for one of the two years wherein Richard took said IRS draws, never mentioning the IRA draw for either year. Richard subsequently petitioned that year too.

Clear? Thought not.

Ex-Ch J Iron Fist: “At the outset, we note that petitioner’s interactions with the IRS–both through the AUR program and his correspondence with Officer J–would be confusing to an ordinary taxpayer. Various offices of the IRS contacted petitioner without coordination, without clarity as to what the other parts were doing, and without providing petitioner a clear explanation as to why the IRS was speaking out of many mouths. A taxpayer ought not to have been subjected to such a byzantine examination. However, we are not empowered to police what ought to have occurred in an examination; we are limited to considering whether section 7605(b), as written, was violated. See Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324, 327 (1974).” 2020 T. C. Memo. 23, at pp. 10-11.

But the AUP isn’t an examination of taxpayer’s “books and records,” because it only looks at the taxpayer’s return and the third-party reporting. Besides, Richard conceded all or part of what Officer J proposed as adjustments on audit, so Officer J’s examination wasn’t unnecessary.

Richard argued that there was unrecaptured basis (original investment in the account) in his late father’s IRAs. “At trial petitioner stated that he had contacted the financial institutions that had held the IRA–TD Ameritrade and Fidelity– seeking documentation to determine the portion that represented his late father’s original investment. Unfortunately, neither institution had the records he sought. At trial he conceded that he could not substantiate that any portion of the distributions represented a return of his late father’s original investment.

“We find credible petitioner’s statement at trial that he attempted to find records that could substantiate his position, and we sympathize with him for the dilemma in which he found himself when he inherited his late father’s IRA. But petitioner bears the burden of proving respondent’s determinations to be incorrect, and he has not. Therefore, we must sustain respondent’s determinations.” 2020 T. C. Memo. 23, at p. 7. (Footnote omitted, but it says if Richard could have proved original investment of after-tax dollars, he could have done better).

But Richard stiped in the Boss Hoss sign-off, and never told his paid preparer about the IRA draws. Sympathetic or not, Richard gets the Section 6662(b) five-and-ten; he’s a cancer surgeon who only checked the IRS website when he took a bundle of cash from late father’s IRA. “Given petitioner’s background and the substantial size of the distribution, this is not reasonable. We therefore conclude that petitioner did not have reasonable cause for his underpayment and that he is liable for the accuracy-related penalty under section 6662(a) and (b)(2)….” 2020 T. C. Memo. 23, at p. 14.

 

 

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