Taxable Talk

Have you ever thought of an area where you'd like to see the IRS issue guidance? Now is your chance to send the IRS cogent tax items that need clarification.

Today the IRS issued Notice 2006-36 requesting recommendations for the 2006-2007 Guidance Priority List. While any taxpayer can submit anything, in order for your recommendation to be seriously considered, you should ask yourself whether the recommendation:

"1. Whether the recommended guidance resolves significant issues relevant to many taxpayers;
2. Whether the recommended guidance promotes sound tax administration;
3. Whether the recommended guidance can be drafted in a manner that will enable taxpayers to easily understand and apply the guidance;
4. Whether the Service can administer the recommended guidance on a uniform basis; and
5. Whether the recommended guidance reduces controversy and lessens the burden on taxpayers or the Service."

If you have any ideas that do, submit them to the IRS by May 15th, to:

Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2006-36)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

Here's the 2005-06 Guidance Priority List. Not everything on the list receives guidance, of course.

Assume that you're a conniving individual. The pesky IRS sends you a notice of non-payment. You decide to either (a) ignore it, or (b) move, but not give the IRS your new address. What will happen? Today, the Tax Court weighed in.

When the IRS sends you a notice, they send it to your last known address. If you move, the IRS has a form for you to file, Form 8822, that you can use to notify them of your new address. (Most state tax agencies have similar forms; California has Form 3533.) It's your responsibility to notify the IRS. If you filed your tax return with a new mailing address, that also is sufficient notification. By the way, like anything else you send to the IRS (or FTB), you should send your change of address by certified mail, return receipt requested so that you have proof that you mailed the notice.

In the case at issue today the petitioners did none of those things. They claimed that they didn't receive the IRS's notices. In their case, they hand't moved, and it may be that the PO Box they used had horrible service. Or it may be that they did receive the notices, and ignored them. Unfortunately for the petitioners, the Tax Court chose not to accept their testimony of non-receipt, and they lost their case.

Case: Prakasam v. Commissioner, T.C. Memo 2006-53

...But they were phony arguments.

Roy Stallard went before the Tax Court before. In Stallard v. Commissioner (T.C. Memo 1992-593), he was fined $8,000 for making frivolous arguments. Fast forward a few years. Mr. Stallard again finds himself in Tax Court. The IRS found that he owed $52,174; he challenged it by filing a petition in Tax Court. But that petition cited numerous Tax Protester arguments, such as:

"4. Because, with respect to a tax imposed on the transfer of property, the person made liable for its payment may be the transferor, transferee or as in the case of the death tax, a third party, due process requires that Congress identify the person made liable for payment of each tax imposed, and so it usually does. The legal personality of each person made liable for the payment every other tax imposed by Congress is described clearly within the IRC, but such is not the case with regard to the purported tax debt here. There is neither an Act of Congress nor a Treasury Regulation which clearly and unequivocally identifies the person made liable for the payment of the purported tax debt."
[Reproduced literally.]

Needless to say, the Tax Court wasn't impressed and gave Mr. Stallard a warning:

"...[The] Court also indicated that the petition contains statements, contentions, and arguments that the Court finds to be frivolous and groundless...In the event that petitioner continues to advance frivolous and/or groundless statements, contentions, and arguments, the Court will be inclined to impose a penalty not in excess of $25,000 on petitioner under section 6673(a)(1), I.R.C."

Surprise of surprises, Mr. Stallard responded with an amended petition that contained a series of frivolous arguments. It starts, "The notice of deficiency is notice in name only and does not meet due process of law requirements for notice...." It makes for interesting reading.

As we've said many times, Yes Virginia, there is an income tax and you must pay it. The Tax Court wasn't as amused as we are in reading his arguments. The Tax Court judges just don't have much of a sense of humor about court arguments. They warned Mr. Stallard that he could be fined $25,000. He was.

Case: Stallard v. Commissioner (T.C. Memo 2006-42)

A couple of weeks ago, I noted that phishers have started targeting people by claiming that you can receive a small tax refund. Just click on their link (to a phony IRS website), give out your information, and we'll get you $82.58 or some other small sum. In Tuesday's Wall Street Journal (paid subscription required), there's yet another article about this scam.

The IRS does not send out emails to taxpayers. The IRS website does have a tool to find where your refund is (you need your social security number, filing status, and the exact amount of your refund).

Remember, if it sounds too good to be true, it probably is.

When I send out a tax return to a client, and it has to be mailed to a tax agency, I always state, in my letter, "mail, using certified mail, return receipt requested...." Joe Kristan of Roth Tax Updates today reported on a court case that made its way to the Iowa Supreme Court. A taxpayer's refund was denied because he couldn't prove it had been mailed in on a timely basis. Apparently, the accountant mailed the return for the taxpayer...but using just first class mail.

Joe Kristan's advice at the end of his post is the same advice we've been giving out for years:

"The Moral? Go to the post office, use certified mail, return receipt requested, and save the postmark receipt and return receipt in a safe place. Better yet, use electronic filing and save the whole runaround." If you're going to spend money having a professional prepare your return (and it's a lot more than $4.50), spend the $4.50 to mail your return!

Hat Tip: Roth Tax Updates

In a recent unpublished opinion, the Eighth Circuit looked at a hobby loss case, Montagne v. Commissioner. One of the points we continually make is to document, document, document. The Montagnes had a horse-breeding "business," but the Tax Court ruled that it was a hobby. The Eighth Circuit noted that there was no financial projections or business plan, and that they co-mingled their business and personal expenses (one bank account). So if you're going to have a business, treat it that way: maintain separate records and a separate bank account.

Case: Montagne v. Commissioner, 04-4137