Tax Court

TurboTax Made Me Do It

Sometimes you should not do your own brain surgery.  Well, make that almost always.  Actually, I can’t think of an exception.  A recent Tax Court Memorandum reminds us of the perils of taking on complicated tasks for which one has no training or aptitude.

Barry Bulakites is an insurance consultant whose clients are primarily accountants.  Mr. Bulakites prepared his own tax returns using TurboTax.  (A bit ironic, I should say.)  According to the Tax Court, “the Commissioner thinks he claimed a few too many deductions, but Bulakites argues that he has enough evidence to prove some of them and blames the software for luring him into claiming others.”

In 2011 and 2012, Mr. Bulakites confronted some pretty complicated tax matters.  The IRS examined those returns and assessed additional tax based on Mr. Bulakites claiming over $300,000 too much in deductions.  Representing himself, Mr. Bulakites petitioned the Tax Court for relief.

The Tax Court decided completely in favor of the IRS about the matters at issue.  Then, the Tax Court found in favor of the IRS with regard to an accuracy-related penalty imposed when there is “any substantial understatement of income tax.”  Mr. Bulakites tried to blame TurboTax, but the Tax Court did not buy his argument.  “[T]ax preparation software is only as good as the information one inputs into it.”

VKM

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Tax Court

Only The Pinball Wizard Qualifies

WARNING:  This blog has a reference that some may find politically insensitive.  If that might bother you, quit reading now.  If you are like 38% of our national electorate, keep reading.

I listen regularly to 60s and 70s rock – music from my glory days. A recent Tax Court Memorandum case reminded me of a line in “Pinball Wizard” from the rock opera Tommy by The Who.  “That deaf, dumb and blind kid sure plays a mean pinball.”  I’ve used that line to advise my clients about who qualifies for equitable “innocent spouse relief” from joint and several liability under Section 6015(f) of the Internal Revenue Code for taxes owed on joint income tax returns.  Only the Pinball Wizard qualifies.

Dr. Nicole Ryke, a medical doctor, sought equitable relief from having to pay Federal income taxes that were shown on her joint returns, but not paid.  The facts outlined in the case indicate that Dr. Ryke was careful to have sufficient withholding taken from her salary to cover her share and more of taxes.  The Court acknowledged that she knew nothing about accounting or tax.

During the years before the Tax Court, Dr. Ryke was a medical resident working long hours and caring for her three children. She left compliance with Federal tax laws in the hands of her attorney husband.  She just signed their joint returns where her husband indicated.

Mr. Ryke was not a conscientious taxpayer.  In fact, he habitually did not file on time.  He frequently did not pay the tax due with returns.  He also had a long history of not paying his debts.

In 2011, Dr. Ryke found that tax was due for 2007 and 2008.  She wrote a check to cover those liabilities.  In 2014, she learned that Mr. Ryke had not paid the tax due on the face of the returns for 2010-2012.  She asked for “innocent spouse relief” under Section 6015(f) from the liability for the 2010-2012 returns.  She also started filing separately from her husband.  She remains married to Mr. Ryke today (or at least at the time of the Tax Court opinion).

While noting that it was not bound by such authority, the Court relied on the provisions of Revenue Procedure 2013-34, which outlines the IRS’ guidelines for granting innocent spouse relief from joint and several liability caused by filing joint returns.  While Dr. Ryke passed the threshold tests to allow consideration of the application of innocent spouse relief, the Court did not grant the relief to her.  The Court concluded that since Dr. Ryke knew before her marriage to Mr. Ryke that he had bad credit and a history of not paying his debts, she should not have relied on him to properly and timely pay their income taxes.

So, even though Dr. Ryke was probably “innocent,” she did not meet the criteria that actually seem to be applied in practice under Section 6015(f).  As I tell my inquiring clients, you have to be a “deaf, dumb and blind” spouse to get innocent spouse relief.

VKM

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