Paul L. Caron
Dean
Pepperdine Caruso
School of Law
Tax Practice And Procedure
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Lesson From The Tax Court: Fake It Till You Make It
Today’s lesson is how to win a valuation dispute with the IRS. I don’t teach much about valuation in my basic tax course. When we work problems involving property, the problems generally tell students to assume a certain fair market value (FMV) for the property. For example, when I teach the deductions allowed by §170…
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Lesson From The Tax Court: The Reduce-To-Basis Rule For §170 Deductions
Basis is probably the most important concept I teach in my intro income tax course. I like thinking of basis as the tax history of a piece of property. It tracks what ought not to be taxed upon eventual sale or exchange of that property under the calculations required by §1001. But a proper understanding…
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Lesson From The Tax Court: Know Your TMP
In my now 22 years of teaching tax, I have assiduously avoided teaching partnership taxation. With any luck, I’ll never have to. Inside and outside basis still confuse the heck outta me. But I do teach tax procedure, so I’ve been forced over the years to learn something about the rules governing audits of partnerships.…
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Lesson From The Tax Court: Don’t Confuse Dummy Returns With Substitutes For Returns
The act of filing a return is central to tax administration. Section 6011 sets out the general requirement: “any person made liable for any tax imposed by this title” must file a return “according to the forms and regulations prescribed by the Secretary.” Section 6012 gets more granular and gives more specific requirements and exemptions…
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Lesson From The Tax Court: Checks … Still Matter
Who uses paper checks anymore? Not my kids. My daughter even prefers to incur a surcharge for using her debit card to pay her rent rather than walking a paper check to the rental office. The practical reason, she says, is that when she uses her debit card she can immediately see the impact on…
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Lesson From The Tax Court: The Finality Of Closing Agreements
Section 7121 authorizes the IRS to enter into “an agreement in writing” with taxpayers “in respect of any internal revenue tax for any taxable period.” Such agreements are called “Closing Agreements.” As implied by that name, the big idea here is that such agreements are meant to “close” a particular tax issue or a particular…
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Lesson From The Tax Court: The Law Of Unintended Consequences
To say the Internal Revenue Code is complex is like saying a virus is hard to see. It understates the obvious. NSS. Today the Tax Court teaches us one consequence of that complexity: the meaning and scope of one statute (§6103) can be altered by the later addition of another statute (§7623(b)). The former is…
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Lesson From The Tax Court: Taxpayer Could Not Prove His Way Out Of §162(f)
The basic rule is simple: the taxpayer bears the burden of proof. That is, all income is gross income unless the taxpayer proves a statutory entitlement to an exclusion; and no expenditure is deductible unless the taxpayer proves a statutory entitlement to a deduction. Complexity comes in the statutes that allow exclusions and deductions. But…
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Lesson From The Tax Court: Non-Receipt of 1099 Does Not Get You Out of Penalties
When we think of penalties we naturally think of punishment. I mean, to channel Steven Wright, if a penalty is not punishment when why does the word start with “penal”? Both this week and next week’s lesson teach us how penalties serve other purposes as well. Today, in Lionel E. Larochelle and Molly B. Larochelle…
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Lesson From The Tax Court: Excise Tax On Messed Up IRA Rollover Different From Income Tax
The tax laws are conflicted. They encourage retirement savings by permitting taxpayers to deduct contributions to their Individual Retirement Accounts (IRA’s). But that encouragement is hedged by various restrictions and caps as well as a special excise tax imposed on contributions that exceed the applicable caps. And Congress crosses its fingers if taxpayers take early…
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Lesson From The Tax Court: No §6015 Equitable Relief For §6672 Penalties
The Internal Revenue Code is full of taxes and penalties. Oh my, so many taxes and penalties! You must always stay aware of which kinds of taxes or penalties are at issue in order to know what rules of law apply. This week and next week will give us two lessons on the importance in…
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Lesson From The Tax Court: The Difference Between Rejecting An OIC And Reviewing A Rejection
Tax collection is a process, not an event. The process can last ten years or more. During that time many different events may occur. Different events may bring with them different decision-makers within the IRS. The secret sauce of representing clients is that when you hit an unfavorable decision-maker, try to find a new one. …
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Lesson From The Tax Court: TP Did Not File Return By Giving Copy To IRS Employee
Figuring out when or whether a taxpayer has filed a return is important for many reasons. On the one hand, proper filing limits the time for the IRS to assess. Thus taxpayers generally want the courts to find they have filed. On the other hand, filing a frivolous or fraudulent return can lead to penalties. …
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Lesson From The Tax Court: A Reasonable Basis For Deducting Scrubs?
My students—especially those with accounting backgrounds—come to class expecting that tax law is all about bright line rules and lots of calculations. They are either disappointed, frustrated, or relieved to find that tax law is like other law: it’s words, words that are generally complex, often opaque, and frequently mysterious. That’s why taxpayers need competent…
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Lesson From The Tax Court: Ask The Right Court
It’s sweet to beat the tax man. It’s even sweeter when you can make the government pay your litigation costs and attorneys fees under §7430. But the bitter lesson for today is that you must be careful to ask the right court. Law is hierarchical. You can appeal a lower court’s adverse decision to a…
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Lesson From The Tax Court: Taxpayer Held To His Word(s) Regarding Alimony
Congress eliminated the deduction for alimony in the December 2017 Reconciliation Act (informally called the Tax Cuts and Jobs Act, or TCJA). The concept is still important, however. First, the legislation grandfathered in alimony payments made pursuant to divorce or separation instruments executed on or before December 31, 2018. So the question of whether a…
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Lesson From The Tax Court: The Sharp Corners Of The §170 Substantiation Requirements
The sainted Justice Holmes once wrote: “Men must turn square corners when they deal with the Government.” It is no accident that Justice Holmes wrote that in a tax case. Rock Island R.R. v. United States, 254 U.S. 141, 143 (1920). Of all the corners in all the laws governing citizen interaction with government, tax…
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Lesson From The Tax Court: Avoiding The 2-Year Lookback Period In Bankruptcy
Today’s lesson is about how to maximize the discharge of tax liabilities through bankruptcy. It's a lesson on timing. Last year I blogged two cases showing how a bankruptcy tolls both the collection and assessment limitation periods in the Tax Code. See Lesson From The Tax Court: For Whom The Bankruptcy Tolls, TaxProf Blog (July…
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Lesson From The Tax Court: Distinguishing Employees From Independent Contractors
Pro Publica has proudly proclaimed that “If You’re Getting a W-2, You’re a Sucker.” I know lots of workers who would strongly disagree. For them, being a W-2 worker (a/k/a “employee”) is far more beneficial than their realistic alternative, which is being a 1099 worker (a/k/a “independent contractor”). The Pro-Publica story was channeling this Brookings…
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Lesson From The Tax Court: What’s Excluded From The §132 Exclusion?
Tax Day is here! And what better way to observe the day than a lesson on §132, a lesson that evokes the ghost of Dan Rostenkowski, whose curmudgeonly visage appears to the right. For those who don’t know, Rostenkowski was the chairman of the House Ways and Means Committee from 1981 until 1994 when, in…
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Lesson From The Tax Court: 50 Ways To Lose Your Interest Abatement Request
Obtaining an abatement of interest reminds me of Paul Simon’s song 50 Ways to Leave Your Lover. Sure, the “50 ways” in the song title is misleading. By my count, Simon gives us only four. And some are singularly unhelpful for real life advice. I mean, “make a new plan, Stan”? Really? But the hyperbole…
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Lesson From The Tax Court: Penalty Approval In Conservation Easement Cases
The §6751(b) supervisory approval requirement for penalties has been a thorn in the side of both the IRS and the Tax Court. Today’s lesson shows us how the IRS penalty approval process in conservation easement audits has forced taxpayers to reach for wilder and less credible attacks in their attempts to avoid penalties by finding…
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Lesson From The Tax Court: Take The Administrative Appeal
Taxpayers famously focus on trying to get their “day in court” against the evil IRS. The Independent Office of Appeals (Appeals) is no court. It is not surprising, then, that taxpayers’ myopia often leads them down the dangerously wrong path of ignoring their opportunity to go to Appeals. Today’s lesson teaches us one reason that…
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Lesson From The Tax Court: What Constitutes A CDP ‘Hearing’?
Before the IRS can start collecting unpaid tax liabilities by levy, §6330(b)(1) requires it to give taxpayers an opportunity for a Collection Due Process (CDP) hearing with the IRS Independent Office of Appeals. Many taxpayers do not fully understand how CDP hearings work. First, they erroneously expect that a CDP hearing is a discrete and…