Monday, October 31, 2011
Eldo Klingenberg v. Commissioner, TC Memo 2011-247 , Code Sec(s) 6212; 6320; 6330; 7122.
ELDO KLINGENBERG, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent .
6212; 6320; 6330; 7122
Docket No. 15355-09L.
Opinion by WHERRY
Reference(s): Code Sec. 6212 ; Code Sec. 6320 ; Code Sec. 6330 ; Code Sec. 7122
Official Tax Court Syllabus
P filed a petition for review of a lien filing pursuant to sec. 6320, I.R.C., in response to R's determination that the collection action was appropriate.
Held : R's determination is sustained.
Gary L. Zerman, for petitioner.
Najah J. Shariff, for respondent.
Opinion by WHERRY
MEMORANDUM FINDINGS OF FACT AND OPINION
This case is before the Court on a petition filed on August 10, 2009, for review of a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination). 1 Petitioner seeks review of respondent's determination to proceed with his filed tax lien.
The collection action stems from a substitute for return respondent prepared pursuant to section 6020(b) for petitioner's 2005 tax year. The issue for decision is whether respondent's settlement officer abused his discretion in determining the proposed collection action was appropriate.
FINDINGS OF FACT
Some of the facts have been stipulated. The stipulations, with accompanying exhibits, are incorporated herein by this reference. At the time the petition was filed, petitioner resided in California.
Petitioner is a self-employed plumber who holds a plumbing contractor's license issued in 1977. He is also a habitual nonfiler who last filed a Federal income tax return for tax year 1990. 2 For tax year 2005 petitioner neither filed a Federal income tax return nor made any payments on his account.
On September 10, 2007, respondent filed a substitute for return under section 6020(b) for petitioner's 2005 tax year. The substitute for return showed income of $2,194 from “Stock and Bond Transaction Proceeds” and $59,733 from “Nonemployee Compensation”. It also listed a section 6651(a)(1) failure to file addition to tax of $3,934.34, a section 6651(a)(2) failure to pay addition to tax of $1,486.31, a section 6654 failure to pay estimated tax addition to tax of $701.41, and interest, computed to October 10, 2007, of $2,846.71.
At trial respondent introduced a copy of petitioner's “Wage and Income Transcript” corroborating the income shown on the substitute for return. It shows a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, listing the payer as “Computershare Shareholders Services Inc” and indicating that the recipient, petitioner, received $2,194 of income from “Stocks and Bonds”. It also shows two Forms 1099-MISC, Miscellaneous Income, one showing “Mojave Desert Bank N. A.” as the payer and petitioner as the recipient of $53,916 of “Non-Employee Compensation” and the other showing “Metzler Construction” as the payer and petitioner as the recipient of $5,817 of “Non-Employee Compensation”.
On November 13, 2007, respondent sent petitioner a notice of deficiency for his 2005 tax year by certified mail to his last known address. Petitioner's address has not changed since 2005. Petitioner did not petition the Court for redetermination of the deficiency. On March 24, 2008, respondent assessed a deficiency of $17,486, delinquency-related additions to tax of $6,032.67, and an estimated tax addition to tax of $701.41 for the 2005 tax year.
On June 12, 2008, respondent mailed petitioner a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to A Hearing under IRC 6320, advising that respondent had on the same day filed a notice of Federal tax lien (NFTL) for tax year 2005. Respondent received petitioner's Form 12153, Request for a Collection Due Process Hearing, dated July 16, 2008, on July 23, 2008. 3 In this Form 12153 petitioner had checked the box for withdrawal of the tax lien. In an attachment to the Form 12153 petitioner requested a face-to-face hearing and seemed to question the validity of the assessment of his 2005 tax liability, claiming that “I don't believe I am liable for the assess [sic] tax seeing that I NEVER had a chance to challenge it before”. In the alternative, petitioner asserted, inter alia that If this liability is indeed a proper assessment and can be proven that it is authentic and owed, I would like to discuss what collection alternatives are available to me, to include, but not limited to Offer in Compromise, Installment Agreements, and any other payment arrangements that may be available to me.
On October 3, 2008, respondent informed petitioner that he had received the case for consideration in the Los Angeles Appeals Office on September 5, 2008. Then on April 15, 2009, Settlement Officer Patrick S. Lin (Officer Lin) sent petitioner a letter acknowledging receipt of petitioner's Form 12153 requesting a CDP hearing and scheduling a telephone CDP hearing on May 1, 2009. In that letter, Officer Lin advised petitioner that if that date was not convenient for him, or if he would prefer that the conference be held by correspondence, petitioner was to inform Officer Lin within 14 days of the date of the letter.
Officer Lin's April 15, 2009, letter also explained that You will be allowed a face-to-face conference upon providing the following documents: (a) a Collection Information Statement (CIS) for Wage Earners & Self-Employed Individuals (Form 433A); (b) a CIS for Business (Form 433B) for your plumbing business; & (c) supplemental financial information/documents listed on CIS's Forms 433A & 433B and are ready to discuss any nonfrivolous issue, including collection alternatives to resolve your liability. The letter cautioned petitioner in bold type that You will be allowed a face-to-face conference on any nonfrivolous issue; however you will need to provide the nonfrivolous issue in writing or by calling me within 14 days from the date of this letter (i.e ., by 04/29/2009) before a face-to-face conference will be scheduled. Officer Lin also explained to petitioner that eligibility for collection alternatives required that petitioner file tax returns for tax years 2006 and 2007 and verify that his 2008 and 2009 estimated tax payments had been made.
On April 17, 2009, Officer Lin accessed the U.S. Postal Service (USPS) Web site in order to confirm that the deficiency notice had been delivered to petitioner. Officer Lin's activity record states that the “SND [statutory notice of deficiency] was delivered to TP's UPS Store mail box on 11/21/2007 at 11:40 a.m.”, which his testimony credibly corroborated at trial.
At the appointed time, Officer Lin called petitioner for the CDP telephone conference. Unable to reach petitioner, Officer Lin left a voicemail. On that same day, May 1, 2009, Officer Lin mailed petitioner a followup letter. That letter set forth petitioner's failure to participate in the scheduled CDP telephone conference and noted his failure to comply with the requirements for collection alternatives eligibility. In this letter Officer Lin asked petitioner to “please contact me by Friday, 05/08/2009 and to provide me with the documents listed in my 04/15/2009 letter, also by 05/08/2009”. The letter further warned petitioner that “If no response to this letter is received by 05/08/2009, a Notice of Determination will be issued to sustain the filing of the Notice of Federal Tax Lien (NFTL).”
On May 4, 2009, Officer Lin received an undated letter from petitioner postmarked April 29, 2009, in which petitioner stated he was “responding to your letter dated April 15, 2009, regarding the tax year 2005”. Petitioner stated that “I will not be able to participate in this telephone conference you scheduled for May 1, 2009”, but offered the hope that “we can agree on another date, sometime in the near future”.
Petitioner's undated letter made it clear that he was interested only in a face-to-face CDP hearing. First he demanded that Officer Lin provide “the rules and procedures that were followed to determine I was not qualified for a face-to-face hearing.” He then stated:
I am fully aware that Face-to-Face Conferences are available for taxpayers to raise valid collection alternatives or other relevant issues pertaining to the lien and levy. Please understand that I have every intention to discuss relevant issues, so please do not expect that collection alternatives to be the only relevant issue that will be discussed. I expect this hearing to be conducted according to the IRS' own rules and regulations. As such, I trust that I would be able to dispute the liability in the CDP Hearing, because I had no prior opportunity to dispute it. Petitioner also explained that he did “not recall receiving a notice of deficiency *** . Please provide proof as to where the Notice of Deficiency was mailed and proof that I received it.”
On May 4, 2009, Officer Lin responded to petitioner's undated letter, reiterating that a face-to-face CDP hearing would require that petitioner provide completed Forms 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and 433-B, Collection Information Statement for Businesses, along with supplemental financial information and documents listed on those forms and communicate a nonfrivolous issue. Officer Lin further explained that the Internal Revenue Manual (IRM) prohibited face-to-face hearings for taxpayers who do not present any nonfrivolous arguments. Officer Lin then set a final deadline of May 12, 2009, for petitioner to provide the requested documents.
Petitioner did not respond to Officer Lin's May 4, 2009, letter or comply with the May 12, 2009, deadline. Officer Lin then prepared an Appeals case memorandum on May 19, 2009, sustaining the filing of the NFTL, and on May 22, 2009, respondent issued petitioner a notice of determination to that effect.
On August 10, 2009, petitioner timely filed a petition with the Court in which he stated that “Respondent failed to provide Petitioner with a face-to-face Collection Due Process (CDP) Hearing, which Petitioner requested to have audio recorded. Petitioner was also not given the chance to challenge the underlying tax liability or collection alternatives.”
On April 14, 2010, respondent filed a motion for summary judgment, and on April 16, 2010, this Court ordered petitioner to file a response to the motion by May 10, 2010. On June 2, 2010, petitioner lodged petitioner's objection to respondent's motion for summary judgment and filed a motion for leave to file it out of time. On June 9, 2010, this Court granted petitioner's motion to accept petitioner's objection to respondent's motion for summary judgment out of time and denied respondent's motion for summary judgment. A trial was held on June 17, 2010, in Los Angeles, California. Petitioner did not personally appear at the trial.
I. Standard of Review Section 6330(c)(2)(B) permits challenges to the existence or amount of the underlying liability in collection proceedings only where the taxpayer did not receive a notice of deficiency or otherwise have an opportunity to challenge the liability. If the validity of the underlying tax is not properly at issue, we will review the Commissioner's administrative determination for abuse Goza v. Commissioner, 114 T.C. 176, 181-182 of discretion. (2000). However, where the validity of the underlying tax liability is properly at issue, the Court will review the matter on a de novo basis. 4 Id.
A. Administrative Record Rule
Petitioner argues that the administrative record rule, in which the Court's review is limited solely to the administrative record, applies. Petitioner objects to the “plethora of evidence on this appeal” this Court supposedly allowed.
This Court held in Robinette v. Commissioner, 123 T.C. 85, 101 (2004), revd. 439 F.3d 455 [97 AFTR 2d 2006-1391] (8th Cir. 2006), that we are not limited to the administrative record in reviewing CDP determinations. However, under the Golsen rule, we follow the law of the Court of Appeals for the Ninth Circuit, to which this case, absent a stipulation to the contrary, is appealable. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), affd. 445 F.2d 985 [27 AFTR 2d 71-1583] (10th Cir. 1971). That court has limited the review of the administrative determination to the administrative record. See Keller v. Commissioner, 568 F.3d 710, 718 [103 AFTR 2d 2009-2470] (9th Cir. 2009) (”our review is confined to the record at the time the Commissioner's decision was rendered”), affg. T.C. Memo. 2006-166 [TC Memo 2006-166] (and affg. and vacating decisions in related cases). Therefore, the administrative record rule applies in this case.
There is an exception to the administrative record rule in the Ninth Circuit by which “The extra-record inquiry is limited to determining whether the agency has considered all relevant factors and has explained its decision.” Friends of the Payette v. Horseshoe Bend Hydroelectric Co., 988 F.2d 989, 997 (9th Cir.
In Asarco, Inc. v. EPA, 616 F.2d 1153, 1159 (9th Cir. 1993). 1980), the Court of Appeals for the Ninth Circuit explained that A satisfactory explanation of agency action is essential for adequate judicial review, because the focus of judicial review is not on the wisdom of the agency's decision, but on whether the process employed by the agency to reach its decision took into consideration all the relevant factors.
Although on brief petitioner objects, the testimony of Officer Lin explaining on what and why he made his administrative determinations is not extrarecord evidence. The processes employed by the settlement officer who made the administrative determination and the documents that respondent had admitted during Officer Lin's testimony (i.e., on what he based his determinations) are part of the administrative record. The mere fact that petitioner did not stipulate the documents does not remove them from the administrative record.
The testimony of Steven De La Cruz from the USPS falls squarely within the exception enunciated by the Court of Appeals discussed above. His testimony merely explained the mechanics of certified mail to the Court. It is clear from Officer Lin's testimony that he already had such knowledge and it was part of his administrative determination.
B. Whether Petitioner Received a Notice of Deficiency Petitioner argues that he never had an opportunity to dispute his underlying tax liability. In his undated letter to Officer Lin, petitioner stated that he could “not recall receiving a notice of deficiency”. However, petitioner never expressly stated that he did not receive the notice of deficiency.
The presumption of official regularity and delivery arises if the record reflects that the notice of deficiency was properly mailed to the taxpayer. Sego v. Commissioner, 114 T.C. 604, 611 (2000); see also United States v. Zolla, 724 F.2d 808 [53 AFTR 2d 84-652] (9th Cir. 1984). Proper mailing includes mailing by certified mail to the taxpayer's last known address. Sego v. Commissioner, supra at 611. If the presumption applies, this Court may find that petitioner received the notice if he fails to rebut the presumption. See Conn v. Commissioner, T.C. Memo. 2008-186 [TC Memo 2008-186]. Where the presumption of official regularity and delivery arises, receipt of the notice of deficiency will be presumed in the absence of strong evidence to the contrary. A taxpayer's self-serving claim that he did not receive a notice of deficiency will generally be insufficient to rebut the presumption. Casey v. Commissioner, T.C. Memo. 2009-131 [TC Memo 2009-131].
Respondent has shown that the notice of deficiency was mailed by certified mail to petitioner's last known mailing address, which is also his current mailing address. The notice of deficiency was not returned to respondent as undeliverable, and Officer Lin testified that he personally checked the USPS Web site for delivery confirmation. Therefore, respondent is entitled to the presumption of official regularity.
At trial, petitioner's counsel, handicapped by the fact that petitioner did not appear, made much ado about nothing. He repeatedly asked Officer Lin why he did not contact the Postal Service for a scanned image of the signature. 5 Officer Lin explained that his Appeals Office does not have the budget to pay for the scanned image and the Web site verification is free. Officer Lin also explained that he had even given petitioner the opportunity to verify delivery for himself by including the tracking number of the notice of deficiency in his May 4, 2009, letter.
We find that petitioner received the notice of deficiency and therefore we will review respondent's administrative determination for abuse of discretion. See Sego v. Commissioner, supra at 610; Goza v. Commissioner, 114 T.C. at 181.
II. Review for Abuse of Discretion Section 6320(a) and (b) provides that a taxpayer shall be notified in writing by the Commissioner of the filing of a notice of Federal tax lien and provided with an opportunity for an administrative hearing. An administrative hearing under section 6320 is conducted in accordance with the procedural requirements of section 6330. Sec. 6320(c).
If an administrative hearing is requested, the hearing is to be conducted by the Appeals Office. Secs. 6320(b)(1), 6330(b)(1). At the hearing, the Appeals officer conducting it must verify that the requirements of any applicable law or administrative procedure have been met. Secs. 6320(c), 6330(c)(1). The taxpayer may raise any relevant issue with regard to the Commissioner's intended collection activities, including spousal defenses, challenges to the appropriateness of the proposed lien, and alternative means of collection. Sec. 6330(c)(2)(A); see also Sego v. Commissioner, supra at 609; Goza v. Commissioner, supra at 180. Taxpayers are expected to provide all relevant information requested by Appeals, including financial statements, for its consideration of the facts and issues involved in the hearing. Secs. 301.6320-1(e)(1), 301.6330-1(e)(1), Proced. & Admin. Regs.
A. Denial of a Face-to-Face Hearing Petitioner repeatedly argues that he was entitled to a face- to-face hearing. Although a section 6330 hearing may consist of a face-to-face conference, a proper hearing may also occur by telephone or by correspondence under certain circumstances. Lunsford v. Commissioner, 117 T.C. 183, 189 (2001); Katz v. Commissioner, 115 T.C. 329, 337-338 (2000); sec. 301.6330- 1(d)(2), Q&A-D6, Proced. & Admin. Regs.
Petitioner never raised any nonfrivolous issue. He repeatedly demanded that Officer Lin explain the procedures or laws that were followed and argued that he did not have the opportunity to contest the underlying liability. However, petitioner never presented any evidence that the underlying liability was incorrect, nor did he suggest an offer-in- compromise or submit any of the requested financial information.
B. Denial of Offer-in-Compromise Among the issues that may be raised at Appeals are “offers of collection alternatives”, such as offers-in-compromise. Sec. 6330(c)(2)(A)(iii). The Court reviews the Appeals officer's rejection of an offer-in-compromise to decide whether the rejection was arbitrary, capricious, or without sound basis in fact or law and therefore an abuse of discretion. Murphy v. Commissioner, 125 T.C. 301, 320 (2005), affd. 469 F.3d 27 [98 AFTR 2d 2006-7853] (1st Cir. 2006).
Section 7122(a) authorizes the Commissioner to compromise any civil case arising under the internal revenue laws. In general, the decision to accept or reject an offer, as well as the terms and conditions agreed to, are left to the discretion of the Commissioner. Sec. 301.7122-1(c)(1), Proced. & Admin. Regs.
Even if petitioner's statement on his attachment to Form 12153 that he “would like to discuss what collection alternatives are available to me, to include, but not limited to Offer in Compromise, Installment Agreements, and any other payment arrangements that may be available to me” could somehow be construed as an informal offer or an offer to make an offer, Officer Lin did not abuse his discretion in refusing to process the offer. Because petitioner had not filed his 2006 and 2007 Federal income tax returns, he did not qualify for an offer-in- compromise. See IRM pt. 126.96.36.199.2.1(1) (May 10, 2011) (”A processable offer must be returned when the investigation reveals the taxpayer has not remained in filing compliance.”); see also Rodriguez v. Commissioner, T.C. Memo. 2003-153 [TC Memo 2003-153] (”The Commissioner's decision not to process an offer in compromise or a proposed collection alternative from taxpayers who have not filed all required tax returns is not an abuse of discretion.”).
Respondent did not abuse his discretion. In making his determination Officer Lin verified that all requirements of applicable law and administrative procedure had been met. Petitioner never offered a concrete collection alternative or raised any nonfrivolous issues and did not provide the requested Forms 433-A and 433-B or any other financial information or testify at trial.
The Court has considered all of petitioner's contentions, arguments, requests, and statements. To the extent not discussed herein, the Court concludes that they are meritless, moot, or irrelevant.
To reflect the foregoing, Decision will be entered for respondent.
Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended.
Respondent has introduced a coded transcript commonly referred to as an “INFOLI transcript”. The Court has admitted this exhibit on the basis of testimonial evidence as to the meaning of this transcript by Appeals Officer Patrick Lin, who is now retired from the Internal Revenue Service. However, in the future this Judge will be reluctant to admit a coded transcript that does not include the codes, particularly when a certified plain English transcript should be available.
The parties stipulated that petitioner's collection due process (CDP) hearing request was timely filed. The CDP hearing request was received on July 23, 2008, which is after the statutory deadline for filing. However, there is no evidence in the record of when the request was mailed. As petitioner's petition was timely filed with this Court and we do not look behind the notice of determination, this has no effect on this Court's jurisdiction. See Lunsford v. Commissioner, 117 T.C. 159, 164-165 (2001).
On brief petitioner somewhat bafflingly argues that “the Tax Court erroneously conducted a de novo review of the CDPH and allowed the government to attempt to establish receipt of the NOD.” However, petitioner's principal argument, that he never received the notice of deficiency and is therefore entitled to challenge the underlying liability, would require this Court to review the administrative determination de novo.
Petitioner's counsel attempted to have introduced documents from another case showing that respondent has in some instances paid for the scanned images. We note that even if these documents had been admitted at trial, they would have had no effect on the result of this case.
Posted by www.irstaxattorney.com at 8:08 PM
Wednesday, October 19, 2011
U.S. v. CUDA, Cite as 108 AFTR 2d 2011-XXXX, 10/04/2011
UNITED STATES OF AMERICA, Plaintiff, v. ANTHONY D. CUDA and BRIAN DANKIS, Defendants.
Court Name: IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA,
Docket No.: Civil Action No. 10-617,
Date Decided: 10/04/2011.
IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA,
amount due to the IRS.” Brounstein v. United States, 979 F.2d 952, 954 [71 AFTR 2d 93-1714] (3d Cir. 1992).
i. The “Responsible Person” Standard
A “responsible person” for the purposes of § 6672 is any corporate employee or officer with a duty to “collect, truthfully account for, or pay over any tax due the United States.” Greenberg, 46 F.3d at 242–43 (quoting United States v. Carrigan, 31 F.3d 130, 133 [74 AFTR 2d 94-5425] (3d Cir. 1994)). Responsibility arises from an employee's “status, duty, or authority” rather than his or her knowledge. Greenberg, 46 F.3d at 243. To be considered a responsible person under § 6672, a person does not need to have exclusive control over his or her company's finances, but merely significant control. Vespe, 868 F.2d at 1332.
Significant control is established when a person has the last say or significant input about which bills or creditors are to be paid. Quattrone Accountants, Inc. v. I.R.S., 895 F.2d 921, 927 [65 AFTR 2d 90-580] (3d Cir. 1989). The Court of Appeals has also held that when determining whether a person has significant control, the following factors should be considered: “(1) the duties of the officer as outlined by the corporate by-laws; (2) the ability of the individual to sign checks of the corporation; (3) the taxpayer's signature on the employer's federal employment or other tax returns; (4) the identity of the officers, directors and shareholders of the corporation; (5) the identity of the individuals who hired and fired employees; and (6) the identity of the individual(s) who were in charge of the financial affairs of the corporation.” Carrigan, 31 F.3d at 133;accord Mitchell , 82 Fed. Appx. at 785. 7
Cuda has admitted that he qualifies as a “responsible person” for purposes of § 6672. (See Docket No. 37 at 2). Thus, the first element of liability under § 6672 is not at issue here. The question is whether Cuda's actions were willful, such that he could be exposed to liability.
ii. The Willfulness Standard
Although Cuda does not challenge his status as a “responsible person,” he does argue that he was not willful in SAES's failure to pay its taxes. A willful act for 26 U.S.C. § 6672 purposes occurs when a responsible person makes “a voluntary, conscious and intentional decision to prefer other creditors over the government.” Quattrone, 895 F.2d at 928. This can include paying net wages to employees while there are outstanding payroll taxes. Greenberg, 46 F.3d at 244. Thus, knowledge of unpaid taxes and the conscious decision to pay other creditors before paying the United States constitutes willfulness. See Quattrone, 895 F.2d at 928 (citing Wall v. United States, 592 F.2d 154, 163 [43 AFTR 2d 79-502] (3d Cir. 1979)).
A responsible person can also act willfully when he or she displays “reckless disregard for whether taxes have been paid.” Brounstein, 979 F.2d at 956. The reckless disregard standard is met when the taxpayer: “(1) clearly ought to have known that (2) there was a grave risk that withh[eld] taxes were not being paid and ... (3) he was in a position to find out for certain very easily.”Carrigan , 31 F.3d at 134 (quoting Wright v. United States, 809 F.2d 425, 427 [59 AFTR 2d 87-467] (7th Cir. 1987)). This standard can also be met when a responsible person is given notice that payroll taxes are not being paid, but takes no steps to investigate the situation or correct mismanagement.Greenberg , 46 F.3d at 244 (quoting Morgan v. United States, 937 F.2d 281, 286 [68 AFTR 2d 91-5491] (5th Cir. 1991)).
A responsible person's action or inaction does not need to be performed with bad intent for it to be considered willful.Greenberg , 46 F.3d at 244. It is sufficient that the responsible person acted knowingly or recklessly.Id.
1. Knowledge and Payments to Other Creditors
Cuda claims that “[t]he record establishes that [he] did not have knowledge that taxes were not being paid during 2005.” (Docket No. 37 at 3). A true lack of knowledge would immunize him from liability for the unpaid taxes. However, the Court finds that there is no genuine issue of fact as to whether Cuda was aware of the unpaid taxes. By Cuda's own admission, he was made aware of the IRS demand for payments as early as July 2005. (Docket No. 38 at ¶ 19). 8 With this knowledge, Cuda should have opted to pay SAES's federal taxes. Instead, SAES continued to pay off its other creditors. For example, the United States has submitted checks dated after Cuda admitted to knowledge of the tax obligations. (See, e.g., Docket No. 33-12 at 3–14, 27, 29–34). Cuda testified at his deposition that he signed several checks on dates in September, October, November and December of 2005. (Cuda Dep. at 104:2–111:6). Therefore, checks were signed and issued after Cuda, a “responsible person,” became aware of the unpaid taxes. By Cuda's own admission, some of these checks were signed by him. (Id.). Thus, Cuda was a “responsible person”, (Docket No. 37 at 2), who had knowledge of unpaid taxes, (Docket No. 38 at ¶ 19), and who chose to pay other debtors before paying off SAES's tax liabilities. (See Cuda Dep. at 104:2–111:6; Docket No. 33-12). All of these uncontested facts are derived from Cuda's own deposition or statement of facts. Cuda has, thus, established his liability through his own admissions, and, therefore, there are no disputes over the material facts as to Cuda's liability.
Further, when “an individual has been a responsible person throughout the period when the taxes should have been collected and paid, but did not have knowledge of the tax delinquency until later, he has a duty to pay over all after-acquired funds to the IRS.” In re Branagan, 345 B.R. 144, 168 [97 AFTR 2d 2006-2642] (E.D.Pa. 2006) (citing Vespe, 868 F.2d at 1334). Cuda admits to learning of the unpaid taxes in July 25 – after both the March and June tax periods — and was, therefore, under a duty to pay off these debts with after-acquired funds. As indicated by the copies of checks submitted by the United States, (see Docket No. 33-12; Cuda Dep. at 104:2–111:6), Cuda used the after-acquired funds to pay off other creditors before (or without) paying off the United States. (Id.). Again, the facts are not in dispute and support a finding of liability.
Cuda attempts to protect himself from liability by arguing that he was in some way misled by Dankis or that the Court should not rely on Dankis's testimony. (Docket No. 37 at 3–4). Cuda's arguments are misplaced. First, whether or not Dankis failed to pay taxes, (id. at 4), is not relevant to Cuda's liability. See Hagen, 485 F.Supp.2d at 628 ( Section 6672 “applies to all responsible persons, and not just the most responsible person.”). Assurances of another that taxes will be taken care of is not a defense to liability under § 6672. Greenberg, 46 F.3d at 244 (citing Denbo v. United States, 988 F.2d 1029, 1033 [71 AFTR 2d 93-1317]–34 (10th Cir. 1993)). Second, the Court's finding of liability is based on Cuda's own admissions, not statements made by Dankis. Assertions, at the summary judgment stage, that are contrary to those made at deposition are not sufficient to create a material dispute of fact. Cf. Martin v. Merrell Dow Pharmaceuticals, Inc., 851 F.2d 703, 705 (3d Cir. 1988) (finding that a party cannot create a dispute of material fact by “flatly contradict[ing]” earlier sworn statements). Once Cuda was made aware of the unpaid taxes, it was his duty to ensure that they were paid — before any other creditors of SAES were paid. He failed in that duty.
A responsible party may be found willful for recklessness when the taxpayer “(1) clearly ought to have known that (2) there was a grave risk that withh[eld] taxes were not being paid and ... (3) he was in a position to find out for certain very easily.” Carrigan, 31 F.3d at 134 (quotingWright v. United States , 809 F.2d 425, 427 [59 AFTR 2d 87-467] (7th Cir. 1987)). In the Court's mind, this is where Dankis's May 2005 e-mail becomes particularly relevant. Cuda admits to receiving an e-mail from Dankis that references Dankis's “irresponsible management with the taxes...” (Docket No. 33-4 at 94:2–14). This e-mail was dated May 18, 2005. (Id. at 94:25–95:2).
Cuda claims that he was confused as to the meaning of this e-mail. (See Cuda Dep. at 94:15–24). It is clear from the record that the responsibilities of office manager were not transferred to Dankis until 2004. (See Dankis Dep. 13:15–22; Benincosa Dep. at 26:14–22). This post-dates Cuda's awareness of SAES's earlier, 2003, tax problems. (Cuda Dep. 39:22–40:8; 67:23–68:12; 68:23–69:13). Thus, Dankis's reference to hisown irresponsible management of taxes in 2005, as distinguished from the 2003 problems that occurred before Dankis took over as office manager, “clearly ought to have” made Cuda aware that “there was a grave risk that withh[eld] taxes were not being paid.”Carrigan , 31 F.3d at 134. Cuda, as Operations Director and Chief, was clearly “in a position to find out for certain very easily.” Id. He did not do so. His failure to do so, regardless of intent, is enough, in this Court's estimation, to establish willful recklessness.Greenberg , 46 F.3d at 244.
Thursday, October 13, 2011
Louis Greenwald v. Commissioner, TC Memo 2011-239 , Code Sec(s) 165; 274; 262; 6651; 6662.
LOUIS GREENWALD, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent .
Code Sec(s): 165; 274; 262; 6651; 6662
Docket: Docket No. 1577-09.
Date Issued: 10/3/2011
Judge: Opinion by WHERRY
Reference(s): Code Sec. 165 ; Code Sec. 274 ; Code Sec. 262 ; Code Sec. 6651 ; Code Sec. 6662
Official Tax Court Syllabus
R's disallowance of a short-term capital loss and the capitalization of certain improvements made to P's home before its sale caused deficiencies in Federal income tax for P's 2005 tax year. R also determined that P was liable for an addition to tax pursuant to sec. 6651(a)(1), I.R.C., and an accuracy-related penalty pursuant to sec. 6662(a), I.R.C., for his 2005 tax year.
Held: P is liable for a portion of the deficiency consistent with the findings herein.
Held, further: P is liable for the sec. 6651(a)(1), I.R.C., addition to tax but is not liable for the sec. 6662(a), I.R.C., penalty.
B. Paul Husband, for petitioner.
Linette B. Angelastro, for respondent.
Opinion by WHERRY
MEMORANDUM FINDINGS OF FACT AND OPINION
This case is before the Court on a petition for redetermination of petitioner's liability for income tax, a failure to file addition to tax, and an accuracy-related penalty for the 2005 tax year. After concessions the issues for decision are: 1
(1) Whether petitioner is entitled to a short-term capital loss of $68,000;
(2) whether petitioner had $356,515 of additional capital gain;
(3) whether petitioner is liable for the section 6651(a) failure to file addition to tax; 2 and
(4) whether petitioner is liable for the section 6662(a) accuracy-related penalty.
FINDINGS OF FACT
Some of the facts have been stipulated. The stipulated facts and the accompanying exhibits are incorporated by this reference. Petitioner resided in California at the time he filed his petition.
On June 29, 2001, petitioner, along with Daniel Lewis Kupper and George H. Manuras, entered into a “Fixed Rate Installment Note” (installment agreement) in the amount of $90,000, with JAV, Inc. (JAV), to purchase a skateboarding accessories business known as Skaters Paradise. Under the installment agreement, petitioner and the two other individuals were jointly and severally liable and were required to make installment payments (with interest) to JAV.
On or about April 11, 2002, petitioner purchased a residence at 610 Olive Road in Santa Barbara, California (Olive Road property), for $1,155,000. Petitioner also owned a second Santa Barbara residence at 590 Santa Rosa Lane (Santa Rosa property) which he leased out. Petitioner refinanced the Olive Road property on October 31, 2002. Petitioner again refinanced the Olive Road property in July of 2003, and in March or early April of 2004 petitioner used the Olive Road property as collateral for a loan with a private lender.
On December 20, 2002, JAV sued petitioner, Daniel Lewis Kupper, and George H. Manuras for nonpayment of the installment agreement. JAV obtained a judgment for $64,491.71 against petitioner on December 23, 2003, which was recorded on December 24, 2003. Petitioner satisfied the judgment by again refinancing the Olive Road property on April 26, 2004.
After petitioner paid the judgment, he tried to keep the business going and sought repayment from Daniel Lewis Kupper and George H. Manuras. He abandoned the venture in 2005.
Beginning in 2002 petitioner began making improvements on the Olive Road property. His bookkeeper, Neala Robbins, recorded each expense. Petitioner typically used his wholly owned corporation, BLSH, Inc., to pay the expenses for the improvements. However, the contractors and other persons petitioner hired understood that they were doing business with petitioner personally and not his corporation.
By 2003 petitioner's wholly owned corporation was no longer actively in business. Petitioner explained that he used the corporation's credit card and accounts “because it was convenient” and because “There was a credit card attached to it, and I had no income or no job, so I couldn't get a credit card, you know, and this one had [a] Louis Greenwald credit card *** and I just assumed that it was okay to use it, and I did.” Petitioner claimed that the money in the corporation's account represented proceeds from refinancing the Olive Road property and the rental income from the Santa Rosa property.
Petitioner sold the Olive Road property on or about January 7, 2005, for $2,650,000. On his 2005 tax return petitioner reported the adjusted basis of the residence as $1,761,198 (including selling expenses). He then subtracted this amount from the sale price to compute his taxable gain of $888,802. From the $888,802 he took the maximum principal residence exclusion of $250,000 and reported a capital gain from the sale of $638,802.
The accounting firm Fineman West & Co., LLP (Fineman West), prepared petitioner's 2005 tax return. Fineman West had prepared petitioner's personal returns in the past; and when he was in business, they had prepared his business returns as well. Petitioner believed that Fineman West was a well-respected certified public accounting firm and “Trusted them implicitly”. Petitioner believed that he provided all of the required information to Fineman West and that his return was prepared correctly. Petitioner also explained that he was under the impression Fineman West automatically requested extensions of time to file for all of the returns they processed.
Jeffery Dunn, C.P.A., a senior tax manager at Fineman West, explained that it was the custom and practice of the firm for an accountant to prepare the return, a senior manager to review it, and then a tax partner to do a second and final review and sign off on it. He also explained that it was Fineman West's practice to request extensions for its clients even if not requested by the client.
The filing date for petitioner's 2005 tax return was not extended. Petitioner did not know why the firm did not automatically request an extension of time to file his return. Petitioner claims that as soon as he found out, he “got it fixed right away” and immediately had the firm file the return. Petitioner's 2005 and 2004 tax returns were filed on January 12, 2007. Petitioner did not file a tax return for 2002 or 2003.
Respondent issued petitioner a notice of deficiency on October 27, 2008, determining a deficiency in income tax of $151,007, a section 6651(a) addition to tax of $45,112, and a section 6662(a) accuracy-related penalty of $30,201 for the 2005 tax year. For that tax year respondent disallowed a claimed net operating loss (NOL) carryforward of $65,993, increased capital gains by $674,515, disallowed itemized deductions of $22,215, and determined alternative minimum tax of $29,906. 3 Petitioner filed a timely petition with this Court on January 21, 2009, denying that he owed the deficiency, addition to tax, and penalty. A trial was held on June 25, 2010, in Los Angeles, California. *** deductions claimed *** [, they] are deemed to have conceded their nondeductibility”), affd. 832 F.2d 403 [60 AFTR 2d 87-5884] (7th Cir. 1987).
I. Short-Term Capital Loss of $68,000
Petitioner claimed a $68,000 short-term capital loss on Schedule D, Capital Gains and Losses, for “Investment JAV-KGM” on his 2005 tax return. 4 Section 165(a) generally allows a deduction for losses sustained within the taxable year. Section 165(c) limits losses that can be deducted by individual taxpayers, permitting a deduction only for losses incurred in a trade or business, in a profit-making activity (though not connected with a trade or business), or from a casualty or theft.
A loss is deductible only for the taxable year in which it is sustained. Sec. 1.165-1(d)(1), Income Tax Regs. In order to be “sustained”, the loss must be “evidenced by closed and completed transactions and as fixed by identifiable events At trial petitioner occurring in such taxable year.” Id. explained that a judgment was obtained against him because of a business installment agreement for which he was personally liable. Petitioner explained that he claimed the capital loss after he was unable to collect from his business partners their shares of the judgment.
The record contains both the installment agreement and the judgment against petitioner. It also contains the paperwork for the refinancing petitioner used to pay off the judgment in 2004. We find credible petitioner's testimony that he continued to seek repayment from his partners during 2004 and part of 2005, after paying the judgment, and then abandoned the venture in 2005. Respondent has not satisfactorily rebutted this evidence; therefore petitioner is entitled to deduct the $68,000 capital loss.
II. Capital Gain of $356,515
Respondent increased capital gain on the sale of the Olive Road property by $606,515. After respondent's concession that petitioner was entitled to the section 121 exclusion of $250,000, capital gain of $356,515 remains at issue. Petitioner claimed that he made total capital improvements of $387,734.60 to the Olive Road property. Most of the expenditures were paid through petitioner's defunct wholly owned corporation, and petitioner submitted receipts for improvements totaling only $171,301.79.
A. Petitioner's Corporation Respondent asserts that because petitioner's personal service corporation made the payments, petitioner is not entitled to add the amounts to the basis of the Olive Road property. We find this argument without merit. Petitioner credibly testified that because of credit card problems he merely used the corporation's accounts as his personal piggy bank clearing house agent, depositing his income from the rental and refinancing and then using the accounts to pay for the capital improvements. In reality and in substance petitioner paid for the capital improvements to the Olive Road property, not his corporation.
B. Substantiation Petitioner included receipts for only $171,301.79 of the $387,734.60 of claimed expenses. Petitioner claims that he included only invoices that exceeded $2,000 because of an agreement with the examining agent. 5
Petitioner urges the Court to apply the Cohan doctrine, under which the Court may allow a claimed expense even where the taxpayer is unable to fully substantiate it, provided the Court has an evidentiary basis for doing so. Williams v. United States, 245 F.2d 559, 560 [51 AFTR 594] (5th Cir. 1957); Cohan v. Commissioner, 39 F.2d 540, 543-544 [8 AFTR 10552] (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). But see sec. 1.274-5T(a), TemporaryIncome Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). In these instances, the Court is permitted to approximate the allowable expense, bearing heavily against the taxpayer whose inexactitude Cohan v. Commissioner, supra at is of his or her own making. 544. However, the record must contain sufficient evidence to provide a basis upon which the estimate may be made and to permit us to conclude that those expenses were allowable, rather than Williams v. United States, supra at 560; personal expenses. Vanicek v. Commissioner, supra at 472-473.
Generally, we agree with petitioner that the application of the Cohan doctrine is appropriate in this instance. Although petitioner did not submit receipts for any expense of less than $2,000, he did submit a complete list of the expenses, including the date incurred, the payee, and the number of the check used to pay each expense. This factual background allows the Court to estimate the expenses; before the amounts disallowed by this opinion below, the Court estimates that petitioner had expenses of $387,734.60.
However, certain of the items on the list were checks written to “Cash” with a description of the purpose for which the cash was supposedly used. Petitioner did not discuss why he used checks written to cash without receipts to substantiate the expenses. We are unconvinced that petitioner used the entire amount of cash extracted from the account for those expenses. Therefore, he is not entitled to add to basis unsubstantiated expenses paid with checks made out to cash totaling $7,661.15. 6
C. Expenses Eligible To Increase Basis Respondent argues that not all of the expenses listed in petitioner's exhibit are eligible to be added to the basis of the property as capital improvements and that certain expenses are noncapitalizable personal expenses. Capital expenditures include “Any amount paid out *** for permanent improvements or betterments made to increase the value of any property or estate.” Sec. 263(a)(1). In contrast personal expenses include those expenses which are “personal, living, or family expenses”. Sec. 262(a).
While we agree that most of the expenses that petitioner included in the amount he capitalized for the house were properly capitalizable, certain expenses cannot be included. These are on petitioner's list of expenses under “Miscellaneous” beginning on February 10, 2002, and continuing to September 11, 2004, with the exception of two charges for storage and one for a pest report. Petitioner did not attempt to explain these expenses at trial; therefore he is not entitled to include expenses totaling $950.33. 7
III. Section 6651(a) Failure to File Addition to Tax Respondent bears the burden of production with regard to the section 6651(a)(1) addition to tax. See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To meet his burden, respondent must produce sufficient evidence that it is appropriate to impose the determined addition to tax. See Higbee v. Commissioner, supra at 446. However, respondent does not have to produce evidence of lack of reasonable cause, substantial authority, or lack of willful neglect. See id.
Section 6651(a)(1), in the case of a failure to file on time any return required under section 6011(a), imposes an addition to tax of 5 percent of the tax required to be shown on the return for each month or fraction thereof for which there is a failure to file, not to exceed 25 percent in the aggregate. Generally, “any person made liable for any tax *** shall make a return or statement according to the forms and regulations prescribed by the Secretary.” Sec. 6011(a). The addition to tax will not apply if it is shown that such failure is due to reasonable cause and not due to willful neglect.
Petitioner's 2005 return was filed on January 12, 2007. Petitioner argues that “October 16 is an appropriate date from which to calculate the late filing penalty”, because he believed that the accounting firm automatically requested an extension for him. Petitioner's argument is essentially that he had reasonable cause for filing his return late until October 15, 2006, but not anytime thereafter.
The failure to timely file a tax return is considered due to reasonable cause where a taxpayer is unable to file the return within the prescribed time despite exercising “ordinary business Jackson v. Commissioner, 86 T.C. 492, 538 care and prudence.” (1986) (quoting section 301.6651-1(c)(1), Proced. & Admin. Regs.), affd. 864 F.2d 1521 [63 AFTR 2d 89-539] (10th Cir. 1989).
Generally, circumstances considered to constitute reasonable cause arise as a result of factors beyond a taxpayer's control and include situations such as unavoidable postal delays, timely filing of a return with the wrong office, death or serious illness of the taxpayer or a member of his immediate family, the taxpayer's unavoidable absence from the United States, destruction by casualty of the taxpayer's records or place of business, and reliance on the erroneous advice of an IRS office or employee. McMahan v. Commissioner, 114 F.3d 366, 369 [79 AFTR 2d 97-2808] (2d Cir. 1997), affg. T.C. Memo. 1995-547 [1995 RIA TC Memo ¶95,547]; see also Gagliardi v. Commissioner, T.C. Memo. 2008-10 [TC Memo 2008-10].
Good faith reliance on professional advice may also provide a basis for reasonable cause; however, it is not absolute. 8 Freytag v. Commissioner, 89 T.C. 849, 888 (1987), affd. 904 F.2d 1011 [66 AFTR 2d 90-5322] (5th Cir. 1990), affd. 501 U.S. 868 [68 AFTR 2d 91-5025] (1991); LaPlante v. Commissioner, T.C. Memo. 2009-226 [TC Memo 2009-226].
There is insufficient evidence in the record for the Court to determine that petitioner had reasonable cause for filing his return late. His supposed reliance on the accounting firm to request an extension for him does not constitute reasonable cause since he knew that if he needed extra time, an extension request was due. That duty to file may not be delegated to an attorney United States v. Boyle, 469 U.S. 241, 249-250 [55 AFTR 2d 85-1535] or accountant. (1985). Petitioner did not testify as to when he gave his information to the accounting firm to prepare his return, and the witness from the accounting firm could not recall what was in petitioner's file. Further, petitioner's 2004 return was filed within a matter of days of his 2005 return. It does not appear that petitioner had reasonable cause for late filing, and thus he is liable for the section 6651(a) addition to tax.
IV. Section 6662(a) Accuracy-Related Penalty Respondent also determined that petitioner is liable for a section 6662(a) accuracy-related penalty for his 2005 tax year. Pursuant to section 7491(c), the Commissioner also has the burden of production with respect to this penalty. Subsection (a) of section 6662 imposes an accuracy-related penalty of 20 percent of any underpayment attributable to causes specified in subsection (b). Respondent asserts two causes justifying the penalty: A substantial understatement of income tax, subsec. (b)(2), and negligence, subsec. (b)(1).
There is a “substantial understatement” of income tax for an individual in any tax year where the amount of the understatement exceeds the greater of (1) 10 percent of the tax required to be shown on the return for the tax year or (2) $5,000. Sec. 6662(d)(1)(A). "[N]egligence” is “any failure to make a reasonable attempt to comply with the provisions of this title” (i.e., the Internal Revenue Code). Sec. 6662(c). Under caselaw, “Negligence is a lack of due care or the failure to do what a reasonable and ordinarily prudent person would do under the Freytag v. Commissioner, supra at 887 (quoting circumstances.” Marcello v. Commissioner, 380 F.2d 499, 506 [19 AFTR 2d 1700] (5th Cir. 1967), affg. on this issue 43 T.C. 168 (1964) and T.C. Memo. 1964-299 [¶64,299 PH Memo TC]).
There is an exception to the section 6662(a) penalty when a taxpayer can demonstrate: (1) Reasonable cause for the underpayment and (2) that the taxpayer acted in good faith with respect to the underpayment. Sec. 6664(c)(1). Regulations promulgated under section 6664(c) provide that the determination of reasonable cause and good faith “is made on a case-by-case basis, taking into account all pertinent facts and circumstances”. Sec. 1.6664-4(b)(1), Income Tax Regs.
Reliance on the advice of a tax professional may, but does not necessarily, establish reasonable cause and good faith for the purpose of avoiding a section 6662(a) penalty. See United States v. Boyle, supra at 251. Such reliance does not serve as an “absolute defense”; it is merely a “factor to be considered.” Freytag v. Commissioner, supra at 888.
The caselaw sets forth three requirements for a taxpayer seeking to use reliance on a tax professional to avoid liability for a section 6662(a) penalty. See Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 99 (2000), affd. 299 F.3d 221 [90 AFTR 2d 2002-5442] (3d Cir. 2002); 9 see also, e.g., Charlotte's Office Boutique, Inc. v. Commissioner, 425 F.3d 1203, 1212 [96 AFTR 2d 2005-6451] & n.8 (9th Cir. 2005) (quoting with approval the above three-prong test), affg. 121 T.C. 89 (2003).
We find that with respect to this penalty petitioner has met the three requirements for a finding of reasonable cause under Therefore petitioner is not liable for Neonatology Associates. the section 6662(a) accuracy-related penalty.
V. Conclusion Petitioner is entitled to deduct the $68,000 capital loss. Petitioner is entitled to increase his basis with respect to the capital expenditures on the Olive Road property consistent with the findings of this opinion. Finally, petitioner is liable for the section 6651(a) addition to tax, but on account of reasonable cause he is not liable for the section 6662(a) accuracy-related penalty.
The Court has considered all of petitioner's and respondent's contentions, arguments, requests, and statements. To the extent not discussed herein, we conclude that they are meritless, moot, or irrelevant.
To reflect the foregoing, Decision will be entered under Rule 155.
Respondent concedes that petitioner is entitled to exclude $250,000 of residential capital gain, and petitioner concedes that he is not entitled to a net operating loss deduction of $65,993.
Unless otherwise indicated, section references are to the Internal Revenue Code of 1986, as amended and in effect for the tax year at issue. All Rule references are to the Tax Court Rules of Practice and Procedure.
Although petitioner contested the disallowed itemized deductions and the alternative minimum tax in his petition, they were not mentioned at trial or on brief. Therefore, to the extent these adjustments are not a mathematical correlative adjustment, we deem them conceded. See Levin v. Commissioner, 87 T.C. 698, 722-723 (1986) (citing Rule 142(a) for the proposition that because “petitioners have made no argument with respect to
We note that the judgment entered against petitioner in relation to JAV was in the amount of $64,491.71. The disparity is not explained by the record.
We note that petitioner (or his counsel) should have been aware that this Court is not constrained by an alleged but unproven agreement made between a taxpayer and the examining agent. Further, the Commissioner as sovereign is generally not bound by unauthorized acts of his revenue agents “even where a taxpayer may have relied to his detriment on that mistake.” Norfolk S. Corp. v. Commissioner, 104 T.C. 13, 60 (1995), affd. 140 F.3d 240 [81 AFTR 2d 98-1198] (4th Cir. 1998); see also Auto. Club of Mich. v. Commissioner, 353 U.S. 180, 183 [50 AFTR 1967] (1957); Hendrick v. Commissioner, 63 T.C. 395, 403 (1974). Nor has petitioner established that respondent should be estopped here. See Wilkins v. Commissioner, 120 T.C. 109, 112 (2003); Lignos v. United States, 439 F.2d 1365, 1368 [27 AFTR 2d 71-1003] (2d Cir. 1971). The consideration of only items larger than $2,000 is also not a statistically valid sample of all expenses since items of less than $2,000 had no chance of being included. See generally Rev. Proc. 2011-42, 2011-37 I.R.B. 318.
However, only $356,515 is at issue, and petitioner's list includes capital improvements which total $387,734.60. Therefore this finding may not have a practical effect on this case.
Again, only $356,515 is at issue. Therefore this finding may not affect the outcome of this case. Respondent also argued that petitioner was not entitled to add to his basis the $7,879.35 of expenses related to staging the house for resale. Even if we disallow those expenses the amount of capital improvements allowed still exceeds the amount at issue.
We have held that for a taxpayer to rely reasonably upon advice, “the taxpayer must prove *** that the taxpayer meets each requirement of the following three-prong test: (1) The adviser was a competent professional who had sufficient expertise to justify reliance, (2) the taxpayer provided necessary and accurate information to the adviser, and (3) the taxpayer actually relied in good faith on the adviser's judgment.” Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 99 (2000), affd. 299 F.3d 221 [90 AFTR 2d 2002-5442] (3d Cir. 2002).
See supra note 8.
Monday, October 10, 2011
Nov. 1 deadline approaching for individuals to file FBAR reporting signature authority
The Nov. 1, 2011 deadline for persons who have signature authority over, but no financial interest in, foreign financial accounts to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) is quickly approaching. This deadline was extended by IRS in Notice 2011-54, 2011-29 IRB 53 , in order to give those individuals extra time to gather the necessary information to file complete and accurate FBARs for 2009 and earlier calendar years.
Each U.S. person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing TD F 90-22.1 with the Department of the Treasury on or before June 30th of the succeeding year.
In Notice 2009-62, 2009-35 IRB 260 , IRS extended the deadline to June 30, 2010, to file a FBAR for years 2008 and earlier, for (i) persons with no financial interest in a foreign financial account but with signature or other authority over that account; and (ii) persons with a financial interest in or signature authority over a foreign financial account in which the assets are held in a commingled fund.
In Notice 2010-23, 2010-11 IRB 441 , which modified and supplemented Notice 2009-62 , IRS deferred the deadline for persons with signature authority over, but no financial interest in, a foreign financial account for which a FBAR would otherwise have been due on June 30, 2010, until June 30, 2011. This deadline applied to FBARs reporting foreign financial accounts for the 2010 and prior calendar years.) Both of these extensions were provided to give Treasury more the time to develop comprehensive FBAR guidance.
On Feb. 24, 2011, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued a final rule to amend the Bank Secrecy Act (BSA) regs regarding FBAR reporting requirements. The rule was made effective as of Mar. 28, 2011 and applies to 2010 reports required to be filed by June 30, 2011, and those for subsequent years. It largely adopted the proposed regs issued on Feb. 26, 2010, which provided additional guidance and clarification regarding who must file FBARs.
In response to comments that individuals with signature authority over, but no financial interest in, foreign financial accounts were having difficulty gathering the necessary information to file complete and accurate FBARs for 2009 and earlier calendar years by the June 30, 2011 deadline, IRS pushed the deadline back to Nov. 1, 2011. (See Notice 2011-54, 2011-29 IRB 53 , However, the June 30, 2011, deadline for reporting either signature authority over, or financial interest in, foreign financial accounts for the 2010 year remained unchanged. IRS also stressed that Notice 2011-54 , had no effect on the requirements to provide information or file FBARs in connection with IRS's 2009 or 2011 Offshore Voluntary Disclosure Programs.
Individuals with signature authority over foreign financial accounts are reminded of the looming Nov. 1, 2011 deadline to file FBARs for 2009 and earlier calendar years.
Notice 2011-54, 2011-29 IRB 53, 06/16/2011, IRC Sec(s). 6011