In Uncategorized on 03/01/2023 at 18:05

STJ Diana L (“Sidewalks of New York”) Leyden reprises her five-year-old adherence to IRS’ computer software in Scott Edward McPherson and Michele Einspar, Docket No. 22322-21S, filed 3/1/23. This is Scott’s story. He’s a patent attorney, and says he’s good with data.


“Petitioner-Husband testified that as a patent attorney, he is very good with data. Unfortunately, with respect to his business and tax records, Petitioner-Husband completely failed to keep or maintain the data necessary to support the claimed disallowed deductions.  Accordingly, the Court sustains Respondent’s disallowance of the deductions set forth in the Notice of Deficiency….” Transcript, at p. 10. 

OK, another indocumentado.

But there’s the Section 6662(a) accuracy chop on the table, either negligence or the five-and-ten understatement variety, and not a Boss Hoss in sight.

But somehow that’s just fine.

“Based on this record, the Court concludes that the accuracy-related penalty for substantial understatement was automatically calculated through electronic means and did not require a supervisor’s approval.  IRC section 6751(b)(2)(B). Therefore, Respondent has met his burden of production.” Transcript, at p. 10.

“This record” features the following. “Petitioner-Husband is an attorney and has testified he is very adept at maintaining data. Nevertheless, Petitioners did not provide the Court with the necessary substantiation or data. Petitioner-Husband’s testimony was vague and self-serving. Petitioner-Husband conceded he did not keep good records. The record does not convince the Court that Petitioners exercised reasonable care and good faith with respect to the disallowed deduction.” Transcript, at p. 11. 

All that said, once Exam disallowed enough of Scott’s deductions, there had to be a five-and-ten penalty. But Exam’s decision to disallow enough of Scott’s deductions was the trigger, and that’s what needs supervisory approval. Otherwise, Section 6751(b)(2)(B) is easily subverted; just run a computer program to input Scott’s numbers, hit “disallow the deductions”, and press “ENTER.”

As I said five (count ’em, five) years ago, “So every time IRS wants to chop a taxpayer they can use a computer program rather than pencil-and-paper to do the arithmetic, and thereby dodge the second look Congress mandated in Section 6751(b)?” See my blogpost “I Sing the Penalty Electronic,” 5/16/18.


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