Paul L. Caron
Dean
Pepperdine Caruso
School of Law
Tax Practice And Procedure
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Lesson From The Tax Court: Taxpayer Excused From Providing Sewage-Soaked Receipts
Section 162 permits taxpayers to deduct all the “ordinary and necessary expenses” they incur in carrying on their trade or business. Generally, we know that taxpayers who claim §162 deductions must substantiate them. Generally, we know that means taxpayer must provide receipts. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930) Of course, taxpayers must…
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Lesson From The Tax Court: Choose Your Return Preparer Carefully
In Stephanie Murrin v. Commissioner, T.C. Memo. 2024-10 (Jan. 26, 2024), Judge Urda decided that the fraudulent acts of a return preparer starting in 1993, made an honest taxpayer liable for some $65,000 in deficiencies resulting from the 30-year old fraud of someone else, plus some $15k in §6662 penalties. That is, the return preparer’s…
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Lesson From The Tax Court: For Whom The SOL Tolls
A recent Tax Court precedential decision raises a really interesting question about the application of §7451’s tolling provision to seemingly late-filed Tax Court Petitions. In Madiodio Sall v. Commissioner, 161 T.C. 13 (Nov. 30, 2023) (Judge Buch), the deadline for the taxpayer to file his Petition fell on Thanksgiving Day. We all know that means…
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A Year Of Lessons From The Tax Court (2023)
Here is a chronological listing of all the Lessons From The Tax Court I posted in 2023, with links to the Lesson, the primary case discussed, and its author. I have also listed the primary Code sections mentioned or discussed in the Lesson. At the end of the chronological listing, you will find a table…
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Lesson From The Tax Court: Taxpayers Behaving Badly 2023
[Author's note: This will be my last new post until January. Next Monday, December 18, my annual Year Of Lessons From The Tax Court will appear in this space. It is a chronological listing of all the Lessons I posted in 2023, with links to each Lesson, the primary case discussed, and the judge who…
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Lesson From The Tax Court Repost: Ipse Dixit Cannot Fix It
[Author's Note: I am preparing exams and so take a break this week from writing a new Lesson. I offer a reposting of a Lesson from 2019 that I really liked, but one that did not get a lot of views when originally posted. I hope you enjoy it!] Mitchel Skolnick and Leslie Skolnick, et…
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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: 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…