In Uncategorized on 05/26/2020 at 17:52

If the late Dr Eric Berne, author of the classic “Games People Play,” were still among us, he would find US Tax Court “a medley of extemporanea,” as a much better writer than I put it. To prove the point, as if more proof were needed, here’s Enrique Aguilar, 2016 T. C. Sum. Op. 16, filed 5/26/20.

It really isn’t Enrique’s story, although his $12K of unreimbursed employee expenses stand the test Judge Gerber applies after IRS tosses Enrique’s entire return as fiction. No, it’s Mr Michael J Contract who, for ten (count ‘em, ten) years prior to year at issue, prepared Enrique’s returns.

Mr Contract (qualifications unstated) was a true original. I’ll let Judge Gerber explain.

“For the [year at issue] return it was Mr. Contract’s idea to report the reimbursed expenses received from Penske as business income on Schedule C and then to deduct that exact amount, resulting in zero income from his employee activity as a buyer. He created that fiction in order for petitioner to claim other expenditures as business expense deductions on Schedule C.” 2020 T. C. Sum. Op. 16, at p. 4.

As Mark Twain put it, “Well you’ve got to admire men that deal in ideas of that size and can tote them around without crutches.”

So on the trial IRS lets stand the $12K unreimbursed employee business expenses, but the rest goes to the fictionist’s grave.

On brief, IRS wants to toss everything, nail Enrique with the phony Sched C income Mr Contract dreamed up but not the offsetting deduction, and of course dump the $12K that exam allowed.

Judge Gerber isn’t having that.

“We agree with respondent that the $40,345 of income and expenses reported on the Schedule C was a fiction. The Court, however cannot agree that petitioner is not entitled to deduct the $12,060 of expenses respondent, pursuant to an examination, allowed in the notice of deficiency.

“Petitioner, on brief, argues that he did have unreimbursed employee expenses. On the record, petitioner presented evidence of expenditures. Under the circumstances, we cannot ignore the $12,060 that respondent allowed petitioner after an audit examination of his records. No evidence was presented at trial showing that respondent’s allowance of $12,060 in the notice of deficiency was in error.” 2020 T. C. Sum. Op. 16, at pp. 6-7.

Enrique gets the $12K, IRS tosses the trash, and Judge Gerber gives them both a Rule 155 beancount at no extra charge.

And this is what Doug Schulman and Dave Williams were trying to stop with the 1884 horse statute.


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