Author: Bryan Camp
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Lesson From The Tax Court: Taxpayers Cannot Invoke The ‘Augusta Rule’ With Unplayable Lie
In the past few years there have apparently been a lot of excited Tik Tok posts about how closely held businesses can use the “Augusta Rule” to get a double tax benefit: a deduction for the business under §162 and tax free income to the business owner under §280A(g). In Kunjlata J. Jadhav and Jalandar…
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Lesson From The Tax Court: A Lesson In Pathfinding
I cannot say it enough: the IRS is not an entity. It’s a vast organization with various offices that perform various functions. And one key idea is that taxpayers may have multiple paths to get to a successful result. If one office cannot help you perhaps a different one can. At the IRS that often…
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Lesson From The Tax Court: Merely Winning Does Not Entitle Taxpayer To Attorneys Fees
Section 7430(a) permits a court to award “reasonable administrative costs” and “reasonable litigation costs” (the largest being attorneys fees) to a taxpayer who is a “prevailing party” in a dispute with the IRS. I use all those scare quotes to emphasize that these are all terms of art. And the scariest, or artiest, one is…
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Lesson From The Tax Court: The Rules For Penalty Approval Depend On Geography
Tax law is supposed to be uniform. The thousands of pages of statutes and regulations are supposed to be applied to taxpayers living in Texas in the same way as taxpayers living in California. The IRS is a single federal agency charged with applying the law uniformly. And the Tax Court is a single national…
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Lesson From The Tax Court: What Makes A NOD Invalid?
When the IRS determines a deficiency of tax, it is then “authorized to send notice of such deficiency to the taxpayer.” §6212(a). That’s called a Notice of Deficiency (NOD). The taxpayer generally has 90 days from the date of the NOD to petition the Tax Court to ask for a “redetermination of the deficiency.” §6213(a).…
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Lesson From The Tax Court: The Limits Of Collection Due Process
One lesson I teach my students is that taxpayers are generally best off resolving issues with the IRS before seeking judicial help. Another lesson is that taxpayers have multiple opportunities to work with the IRS in the collection process. So just because one opportunity fails does not mean the taxpayer is out of options. Today…
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Lesson From The Tax Court: The Designated Payment Rule
Payroll taxes present particularly prickly problems. The problems often arise from a failure to make timely deposits of the correct amounts. That can happen for lots of reasons, some innocent, some willful. But once the employer gets too messed up, fixing the problem can be tricky because the IRS will take whatever payments are made…
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Lesson From The Tax Court: Equitable Tolling During Government Shutdown?
Like winter, a shutdown is coming. And last week, the Tax Court issued a really important reviewed decision about equitable tolling of CDP hearings. The two are connected because the Tax Court lesson may become very useful for taxpayers faced with an inaccessible IRS during periods of government shutdown For those of us having a…
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Lesson From The Tax Court: Supervisory Approval Of Automated Penalties
Section 6751 requires the IRS to ensure adequate supervisory approval of tax penalties before those penalties are assessed. But it does not require such approval for any “penalty automatically calculated through electronic means.” §6751(b)(2)(B). Today we learn a surprisingly nuanced lesson about what constitutes a penalty automatically calculated through electronic means. In Piper Trucking &…
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Lesson From The Tax Court: When ‘My CPA Did It’ Is No Defense To Penalties
Life is complex. Tax shadows life. So it is no wonder that Tax law is complex. And the more complex a taxpayer’s financial life becomes, the more likely they will goof up. While Congress imposes penalties for errors, it also recognizes the complexity of tax law by allowing taxpayers to avoid most penalties if they…
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Lesson From The Tax Court: The Boundary Waters Of Equity
Every birthday gives me the opportunity to appreciate the luck I've had in my life. Last week was my 63rd. I fondly remembered my summers at Camp Chippewa, a wonderful summer camp just outside of Bemidji, MN. One focus of that camp was canoe trips, including trips exploring the Boundary Waters in upper MN and…
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Lesson From The Tax Court: Cannot Use CDP To Contest Trust Fund Recovery Penalty
Unpaid employment taxes are a substantial problem for both the government and taxpayers. From the government’s perspective this Treasury website tells us that “employment tax violations represented more than $91 billion of the gross Tax Gap and, after collection efforts, $79 billion of the net Tax Gap in this country.” From the taxpayer’s perspective, dealing…
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Lesson From The Tax Court: The DOI Downside To Disregarded LLC
According to this Wikipedia entry, the “limited liability company ("LLC") has grown to become one of the most prevalent business forms in the United States.” That is likely because state law gives substantial liability protections to LLCs, similar to traditional corporations, but allows for more flexible ownership and governance structures. That flexibility also creates more…
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Lesson From The Tax Court: Tax Protesting—A Hobby That Eats
Everyone should have a hobby. Generally, hobbies are good for you, as this Utah State University Mental Health Education post explains. But some hobbies become cancerous, becoming all-consuming. Those hobbies are not good for you. As Benjamin Franklin reportedly put it: beware the hobby that eats. Protesting your taxes is a hobby that eats. Bob…
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Lesson From The Tax Court: Tax Consequence For Discharge Of Non-Recourse Debt
One of the hard concepts to teach students is the different tax treatments for recourse loans and non-recourse loans. It gets especially confusing when the sale of underwater property includes a Discharge of Indebtedness (DOI) as part of the sale. In Michael G. Parker and Julie A. Parker v. Commissioner, T.C. Memo. 2023-104 (Aug. 10,…
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Lesson From The Tax Court: Gotta Get Physical For Casualty Loss Deduction
Individuals generally cannot deduct casualty losses, at least through the end of 2025. §165(h)(5). But Congress continues to permit individual taxpayers to deduct casualty losses if they are attributable to a federally declared disaster. Id. And we are having more and more disasters. Call it climate change, call it a banana, the brutal fact is…
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Lesson From The Tax Court: An Object Lesson On Adequate Business Records
[Author’s Note: this past week I joined the 77.5% of Americans who been infected with COVID. So tired …. zzzzz ** what? So this week’s lesson may reflect my COVID-fogged brain. If you find more errors than usual, I humbly apologize and promise to do better next week.] Some of my Lessons From Tax Court…
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Lesson From The Tax Court: Creating Your Best Administrative Record
When the Tax Court reviews an IRS Collection Due Process (CDP) decision about collection, it always uses an abuse of discretion standard of review. That is, it does not simply substitute its judgment for that of the Office of Appeals Settlement Officer (SO), but instead looks to see whether the SO committed an error of…
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Lesson From The Tax Court: Deducting Graduate School Costs
My desire to become a law professor crystalized during the four years I practiced law after my judicial clerkship. My academic mentors told me it would be very difficult to get a job in the legal academy because I had been “contaminated” by … wait for it … wait for it … actually practicing law! …
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Lesson From The Tax Court: Freedom, Taxes, And Hobbies
We have great freedoms in this country. Freedom to express ourselves. Freedom to fish. Freedom to write blog posts. Freedom to pursue any lawful activity to make money. Truly ours is a great civilization well worth tomorrow's celebration. But. To riff on a well worn aphorism: with great freedom comes great responsibility. In particular, as…
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Lesson From The Tax Court: How To Calculate Insolvency For The §108 Exclusion
While not as certain as death and taxes, small businesses failures are highly probable events. This webpage from the Bureau of Labor Statistics goes into the gnarly. When a small business fails, that often means it cannot repay loans. A lender will often write off the loan as a bad debt, discharging the borrower from…
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Lesson From The Tax Court: The Administrative Record Rule In Whistleblower Cases
Law is a slow-moving conversation. I tell my students that one law year is seven human years, kinda like one human year is seven dog years. So it was only a couple of years ago, in 2006, that Congress created the current whistleblower award program in the Tax Reform and Health Care Act of 2006, 120…
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Lesson From The Tax Court: The IRS’s Substantial Justification Defense To §7430 Fee Awards
Getting an award under §7430 is hard, even if the taxpayer totally wins. The major stumbling block is a statutory escape hatch called substantial justification. If the IRS’ shows that its position was substantially justified at the relevant time, the taxpayer is not entitled to fees and costs even if the taxpayer wins on the…