In Uncategorized on 05/14/2020 at 19:23

No, the title hereof is not a typo; today we have conjoined promoters of accountable tool plans, Bruce W. Lemay, 2020 T. C. Memo. 57, and Allen R. Davison, 2020 T. C. Memo. 58, both filed 5/14/20, being hit for Section 6700 promoting bogus dodges chops.

A tool plan is a purportedly an accountable employee expense reimbursement plan, per Section 62(a)(2). If the employee purchases tools for use in the course of employment, for which the employee receives reimbursement from the employer, the reimbursement is not taxable as wages. Also, the employer need not collect or pay over FICA/FUTA/ITW. Primary industries where this would sell were “heating, ventilation, and air conditioning industry, as well as the automotive and trucking industries.” 2020 T. C. Memo. 58, at pp. 14-15.

Of course, legitimate accountables require substantiation and repayment to employer of any overpayments. Anything else is disguised wages, and taxable accordingly. Those who promote phonies get chopped heavily.

Bruce, insurance guy, started to check out these plans, and found they were a wee bit dodgy. He teamed up with old friend Allen, lawyer and CPA, and started selling these plans. But they claimed 35% of employee’s wages was reimbursement, had employees claim old tools, new tools, tools not used in employment, took original prices (not FMV) and didn’t account for depreciation, and never reimbursed employers.

Allen and Bruce went to some legit accounting and law firms, and were told their deal didn’t fly. Allen and Bruce never told their customers. Allen and Bruce get enjoined by IRS, and chopped.

IRS wants to levy, but hold off actually grabbing until the Forms 6118 refund claims Bruce and Allen filed get sorted out, even though more than the statutory six months have passed and neither Bruce nor Allen sued.

There was no prior opportunity to contest liability, so Bruce and Allen get de novo, burden of proof on IRS, preponderance of evidence the standard. IRS must show “…(1) organized (or assisted in the organization of) or participated (directly or indirectly) in the sale of an interest in an investment plan or arrangement, or any other plan or arrangement and (2) made material statements concerning the ‘tax benefits’ to be derived from that plan or arrangement that petitioner knew or had reason to know were false. See sec. 6700(a).” 2020 T. C. Memo. 58, at p. 48. (Footnote omitted).

While “plan or arrangement” isn’t defined in the statute, courts have read the term broadly to include any kind of tax-cutting dodge. And this tool business sure is.

Allen and Bruce both had the education, and the shoot-downs from the accounting and legal firms they talked to, to know their deals were shady. IRS doesn’t have to prove any particular person relied what Brice and Allen told them, but only that the truth would have had an impact on a reasonable taxpayer’s decision to do this deal.

IRS wins.







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