Hans Kasper, MS-CPA, PS
Cases and Announcements
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The following are in date order from the most recent to the oldest.
An individual was not entitled to innocent
spouse relief with respect to delinquent taxes on her former husband's
unreported earnings because she knew of the omitted income.
Married individuals fraudulently conveyed real property to a trust they
had created in order to avoid payment of their tax liabilities. The
IRS could collect delinquent taxes by foreclosing a lien on the real
Engh CA-7 2003-1 USTC
debtor who willfully and deliberately attempted to evade or defeat his tax
obligations for siz years was denied a bankruptcy discharge for the
delinquent taxes and accrued interest.
Rowen, BC-DC Alaska
The government could garnish the individual retirement account (IRA) of an
individual convicted of conspiracy to defraud the United States, tax
evasion, and filing a false federal income tax return in order to satisfy
the criminal fine imposed on him. The IRA was subject to garnishment
under the Federal Debt Collection Procedures Act.
Grico, DC Pa 2003-1 USTC
A taxpayer was liable for taxes and
penalties on unreported bonus income and on prematurely withdrawn pension
income. The bonuses were not excludable as gifts, and assessment and
collection were not time-barred. Penalties were imposed.
A sole shareholder's income from his S
corporations was properly reconstructed using the bank deposits method
because he failed to produce adequate books and records to refute the
IRS's determination. He qualified as an employee of one of the
entities, and the compensation that he received constituted taxable wage
income. Penalties were imposed.
A couple was not entitled to exclude from
gross income damages received from the settlement of a sexual harassment
suit. They failed to establish that the damages were paid in
connection with a physical injury or sickness.
S-CORPORATION DIVIDENDS VS. WAGES
The president and owners of an S corporation
was classified as an employee for tax purposes. The entity could not
characterize payments made to him as distributions other than dividend
distributions paid from accumulated earnings and profits, as opposed to
wages. The payments constituted compensation for services and were
subject to FICA and FUTA withholding (in all of the cases below).
The court took on all of these cases at once which is very unusual which
means that they are trying to send a message to all S corporation owners.
Veterinary Surgical consultants, PC, TC
Mike J Graham Trucking Inc, TC
Superior Proside Inc, TC
Specialty Transport and Delivery Service Inc, TC
Nu-Look Design Inc, TC
Water-Pure Systems, Inc, TC
A divorced couple that operated franchise
donut businesses willfully filed false tax returns for three years.
The couple systematically deducted their personal expenses as the business
expenses of two corporations.
Dunkin' Donuts, Inc. v. Martinez DC Fla, 2003-1 USTC
Married taxpayers who filled out zero-income
amended tax returns were not entitled to injunctive relief in their
challenge to the assessment of frivolous return penalties.
Johnson, DC Fla, 2003-1 USTC
A frivolous return penalty was properly
imposed against an individual who, despite the receipt of earned income,
filed a zero-income return and questioned the IRS's authority to collect
Loze, DC La, 2003-1 USTC
An individual's outstanding tax obligations
for two years was discharged in bankruptcy. The taxpayer's returns
constituted an honest and reasonable attempt to satisify the requirements
of the tax laws, even though the IRS had already assessed taxes against
him for those years.
Klein, BC-DC Fla 2003-1 USTC
The IRS is cracking down on promoters of frivolous tax arguments and referred cases to the Department of Justice for criminal prosecution. The courts have repeatedly rejected these arguments and are imposing substantial penalties on taxpayers and promoters for taking frivolous positions. Listed below are a list of these positions.
The federal income tax system is voluntary.
Only foreign income is taxable.
Only government employees are taxable.
You can invoke the first or sixteenth amendment to avoid paying taxes.
There are special credit for minorities.
Foreign trusts do not have to pay income taxes.
Business trusts created by married taxpayers were deemed shams and, as a
result, the taxpayers were liable for the negligence and substantial
understatement components fo the accuracy-related penalty.
Nichols, TC, Fed 47,955
A federal district court properly determined
the amounts embezzled by an individual from his employers based on
spreadsheets and an affidavit provided by the victim. The trial
court's refusal to group the criminal counts of mail fraud and tax evasion
Peterson, CA-10, 2003-1 USTC
An individual was not entitled to a
deductions for funds he forfeited pursuant to a conviction for illegally
importing, and failing to pay excise taxes on, Freon. The forfeiture
was in the nature of an economic penalty for illegal activity in
contravention of established national policy.
Wood, DC, Cailf., 2003-1 USTC
An individual who had no knowledge of her
husband's understatements of tax attributable to his omitted medical
practice income was deemed to have constructive knowledge of the
information reported on the joint returns. This, innocent spouse
relief was denied. Equitable relief was also denied in light of the
economic benefit that she received.
Convictions against sibling owners of a
family construction business in connection with aiding and assisting in
the preparation of false tax returns and conspiracy were upheld.
Gambone Sr., CA-3 2003-1 USTC
Gain on the sale of a condominium was
includible in an individual's income. Unsubstantiated deductions for
advertising, automobile, employee benefit program, interest, legal and
professional services, repairs, tax and license, and travel, meal, and
entertainment expenses were denied. The negligence penalty was
Triplett, CA-6, 2003-1 USTC
Absent evidence to the contrary, an attorney
was determined to have realized unreported income in the amount of
deposits in bank accounts over which he had dominion and control.
Penalties were imposed.
The IRS properly reconstructed a
corporation's unreported income and the entity's unsubstantiated and
illegal deductions were disallowed. The statute of limitations did
not bar the assessment of deficiencies and fraud penalties were imposed.
Shareholders were liable as transferees for the dissolved corporation's
The IRS's reconstruction of an attorney's
income to include unreported income from her sole proprietorship was
upheld. The taxpayer was also denied claimed deductions related to
horse-breeding activities because the activities were not engaged in for
The district court did not err in applying,
under US Sentencing Guidelines, a four-level enhancement to two
individuals' criminal sentences for being leaders or organizers of a tax
D'Ambrosia, CA-7, 2003-1 USTC
An accountant and his wife were properly
held liable for the accuracy-related penalty due to a failure to report
income and the persistent refusal to acknowledge liability for taxes on
revenues. The imposition of delay sanctions for proceedings with
frivolous arguments was also sustained.
Corcoran, unpublished CA-9 2002-2
A federal tax lien against an individual's
pension payments that arose from assessments for unpaid federal income
taxes, penalties and interest was enforced.
The Northern Trust Company, DC Ill 2003-1 USTC
A debtor who filed tax returns only after
the IRS prepared substitute returns and assessed taxes against him was not
entitled to a bankruptcy discharge for the amounts owing.
Moroney , DC Va 2003-1 USTC
A Russian translator was properly denied
deductions for depreciation on his auto, cell phone, education expenses
and costs for the business use of his home due to a lack of
Vaksman, CA-5 2003-1 USTC
A real estate broker who filed to properly
substantiate her business, travel, and meal expenses was not entitled to
deductions in excess of the amounts allowed by the IRS. She was
liable for the negligence component of the accuracy-related penalty.
The doctrine of res judicata barred married taxpayers from challenging the IRS's reconstruction of their income and the stipulated agreement regarding the amount of the couple's tax liability. A final judgment had already been entered in the matter and affirmed on appeal.
Palmer, DC idaho, 2002-2 USTC
An individual was properly convicted of
willfully filing false returns. The jury was properly instructed on
the law regarding willfulness, and the taxpayer's sentence did not violate
his constitutional rights.
TM Bidegary, unpublished CA-9, 2002-1 USTC
IRS raises threshold to $1,500 for filing interest and dividend income on separate schedule.
An individual's claims that unreported income was nontaxable were vague
and uncorroborated. Penalties were imposed.
An individual was not entitled to exclude from income proceeds received in
settlement of an age discrimination lawsuit against her former employer.
A significant portion of the proceeds was paid to satisfy a loss of
Peaco, unpublished CA-3 2002-2 USTC
The IRS's reconstruction of the
income of an attorney's S corporation via the bank deposits method
established that he and his former wife received unreported income.
There was no evidence that the S corporation's standard practice was to
transfer all funds received in the form of credit card authorization slips
from one bank account to another. Unsubstantiated business expense
deductions were disallowed; penalties were imposed.
Johnston, TC FED 48,107
The sale of the individual
taxpayers' real property to satisfy his current tax debt was proper where
he failed to file tax returns for four years. A sale of the
taxpayer's residence was granted subject to the deed of trust held by the
bank. Although the sale of the wife's portion could have been
prevented because no assessments were outstanding against her, in this
instance, her interest were not protected.
Downing, DC Iowa, 2002-2 USTC 50,661
Civil penalties were properly
assessed against a married individual filing separately who failed to
report any income despite being employed. The notice of balance due
served as a notice and demand for payment and Form 4340 reflected required
taxpayer information to verify the tax liability.
Wilson, TC FED 48,110
IRS announces major shift in audit priorities; high-income groups especially targeted.
Offshore credit card abuse;
High-risk, high-income taxpayers;
Abusive schemes and promoter investigations; and
Non-filing by higher-income taxpayers.
An individual was liable for a penalty
assessed against him for filing frivolous returns. His return
reporting no income earned or taxes due was facially invalid.
collection was allowed to continue without restriction because the
government followed proper statutory collection procedures.
Haas, DC Nevada 2002-2 USTC 50,631
A civil penalty was properly assessed
against an individual for filing a frivolous return. The return was
substantially incorrect in that both the taxpayer and his spouse were
employed and received Forms W-2 indicating as such, yet no taxable income
was reported. The taxpayer's argument challenging the legal
authority of the penalties was properly disregarded during his CDP
Goltz, DC Texas 2002-2 USTC 50,638
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This page was last updated on 05/13/2010
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