Tax Week in Review for the Week Ending October 21, 2016

Opinions, Decisions & Rulings Released this Week


Talbot v. Commissioner – T.C. Memo 2016-191

Issue: Address error resulted in improper mailing of deficiency notice. Therefore, was the taxpayer given proper notification of deficiencies prior to IRS collection proceedings?

  • Taxpayer (T) failed to file tax returns for 2001, 2003 to 2005 and 2007 to 2009. IRS created substitute tax returns for the unfiled years.
  • During the years in dispute, the taxpayer had resided at 3 different addresses within the same zip code.   The IRS sent notices of deficiency to each address of record at the time of determination. However, the taxpayer did not respond to any of the correspondence sent by the IRS.
  • IRS issued notices of intent to levy (NFTL). Taxpayer asserted that the original determination letters were never received and that the agent failed to verify that the notices were delivered to the proper addresses before issuing the NFTL’s.
  • Decision: The court sustained the assessments for the earlier years, but due to a typographical error, notices for tax years 2007 to 2009 had been mailed to an incorrect address. Accordingly, the notice of intent to levy for those years could not be sustained.
  • Despite continued correspondence and requests for information between the taxpayer and IRS, the court noted: “An assessment is not valid unless it is duly preceded by the mailing of a notice of deficiency to the taxpayer’s last known address. Sec. 6213(a).”

The full text can be seen here: T.C. Memo 2016-191



St. Claire v. Commissioner – T.C. Memo 2016-192

Issue: Was the limitation placed on a taxpayer’s attempt to collect reimbursements of legal costs associated with examination justified, though the taxpayer’s case was resolved in his favor?

  •  Following a divorce, Husband’s (H) claim of 3 children as dependents on his 2012 return was rejected when he attempted to e-file. H submitted his Form 1040 with a letter of explanation from counsel to support his claims for his dependents.
  • The IRS proceeded to ask H for documentations to support his claim, as part of a correspondence examination. H provided signed Forms 8332 to substantiate his claim, as well as additional documents requested. Inconsistencies, including incorrect signature placements, resulted in claims of dependents to be denied.
  • H petitioned the Tax Court. Upon verification that the spouse had signed the Forms 8332, the IRS conceded to all adjustments. Under the circumstances, H requested that the IRS reimburse H for legal costs he incurred regarding the audit.
  • The IRS limited the costs to a lower, standard hourly rate and would only consider costs incurred after the date the IRS had denied H’s request for an Appeals Office review and 3 months thereafter when H’s counsel had reviewed the notice of deficiency.
  • The Tax Court allowed for the costs following the date of the appeal, as the IRS was justified in questioning the validity of the Form 8332 provided and had acted in good faith. The Tax Court also provided an allowance (4 hours x $200) for the attorney’s services for preparing and prosecuting H’s motion for costs.

The full text can be seen here: T.C. Memo 2016-192



Shamrock v. Commissioner – T.C. Memo 2016-193

Issue: Will the court set aside a settlement agreement if the taxpayer’s representative is not authorized to practice law in the state?

  • Taxpayers filed an original, plus 2 amended returns, for 2009. The 2nd amended return included an ordinary loss of $435,000 loss on Form 4797, reporting a sale of real property.
  • During an IRS exam of the 2009 tax return, client became dissatisfied with the work and representation provided by his accountant (and attorney) regarding the audit and retained new counsel to represent him and his spouse.
  • Attorney #2 provided taxpayers with diligent and effective representation. However, unknown to the taxpayers, Attorney #2 was not current with required dues to maintain his license in good standing.
  • Dissatisfied with the eventual settlement that was agreed upon with the IRS, taxpayers sought new counsel. Representative #3 (a licensed CPA) requested the settlement be set aside as their counsel was not authorized by the state to practice law at the time services were rendered.
  • Decision: The Tax Court determined the representation by Attorney #2 was done diligently, fairly and competently. The taxpayers were well represented and there was no fraud found by the court.

The full text can be seen here: T.C. Memo 2016-193



In the News this Week

IR 2016-138– Retirement Plans Can Make Loans, Hardship Distributions to Victims of Hurricane Matthew

  • The Internal Revenue Service announced that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Matthew and members of their families. This is similar to relief provided this summer to Louisiana flood victims.
  • To qualify for this relief, hardship withdrawals must be made by March 15, 2017.
  • In addition, a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.
  • Further details are in Announcement 2016-39.   More information about other relief related to Hurricane Matthew can be found on the IRS disaster relief page.

The full text can be read here: IR-2016-138



IR 2016-135– Late Filing Relief for Victims of Hurricane Matthew

  • Hurricane Matthew victims in much of North Carolina and parts of South Carolina, Georgia and Florida have until March 15, 2017, to file certain individual and business tax returns and make certain tax payments.
  • This includes the Jan. 17 deadline for making quarterly estimated tax payments. For individual tax filers, it also includes 2015 income tax returns that received a tax-filing extension until today, Oct. 17, 2016.
  • In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS.


The full text can be read here: IR-2016-135



Social Security Cap to $127,200 for 2017

  • The Social Security Administration announced that the wage cap for social security withholding will increase from $118,500 to $127,200. This represents a 7.3% increase over 2016.
  • Based on the Consumer Price Index changes from 2014 to 2016, social security beneficiaries will receive a .03% Cost of Living Adjustment for 2017.

The full text can be read here: SSA Fact Sheet



IRS Audit Tax Guide Released in September – Guidance for Auditing Tangible Property

  • Last month, the IRS released it latest audit technique guide for examiners analyzing capitalization of tangible property.
  • Just in time for your post tax season reading. Enjoy!

Download the ATG here: IRS ATG Tangible Property

Categories: Uncategorized

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