SIMPLY TAXES Beware! Appraisal Required

Using appreciated stock held over a year to fund a significant contribution to a public charity instead of cash can result in a “double play”. You can get the benefit of a deduction equal to the full fair market value of the shares and at the same time avoid paying capital gains tax on the appreciation.

Making a charitable contribution using publicly traded stock is fairly simple. For contributions of more than $5,000, you must attach Form 8283 with a description of the shares contributed, their fair market value, how you acquired the shares and your cost basis. In addition, as is true for all contributions over $250, you must obtain written contemporaneous acknowledgement of your contribution from the charity, which must include a statement that you did not receive anything of value in return for making the contribution.

The same result can be attained with a charitable contribution of non-publicly traded shares. However, for gifts valued at more than $10,000, there is an additional requirement. In order to secure a deduction, you must get a “qualified appraisal”.  A qualified appraisal is a complex and detailed document, which must be prepared and signed by a “qualified appraiser”. While it generally does not have to be attached to your tax return, the appraisal must be obtained before the due date, including extensions, for filing your income tax return on which the deduction is claimed.

We are often asked about charitable contributions involving non-publicly traded stock and business interests, where the appraisal requirement seems redundant and completely unnecessary. Consider a contribution of an interest in a partnership whose units are freely exchangeable for shares of publicly-traded stock; or, a contribution of shares in a corporation whose shareholders are subject to a “buy-sell” agreement, which clearly sets the value of the shares; or, a contribution of shares in a closely-held corporation whose shares have traded in many arms-length transactions during the year. Unfortunately, even when an appraisal is redundant, the Code and Regulations strictly require that you get an appraisal.

What if you have made a significant charitable contribution of appreciated non-marketable securities in 2016 and you have not yet obtained a qualified appraisal? You should consider requesting an extension to file your 2016 income tax return before the April 18, 2017 deadline, so you have until October 15 to get your qualified appraisal. No appraisal means no deduction, or at best, your deduction will be limited to your cost basis instead of the fair market value.

CONSULT YOUR TAX ADVISER — this article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation. George Ashley is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He may be reached at 775-831-7288, and welcomes comments at GAshley@ashleyquinncpas.com.

Foreign Financial Account Reports Due Soon!

All deadlines have more or less equal implications, but some deadlines are more equal than others.  This one looms – no later than June 30 upcoming!

By law, many U.S. folk with foreign accounts exceeding certain thresholds must file Form 114, “Report of Foreign Bank and Financial Accounts” (aka “FBAR”) electronically with the Treasury Department’s Financial Crimes Enforcement Network (“FINCEN”).Read More

No Surprise: Social Security Just Doesn’t Measure Up

We’ve been preaching that note for decades – but some folk just don’t seem to get it, and refuse to look after their own savings needs, expecting they will be spending each summer on the Riviera.  It just doesn’t work that way.

The Tax Foundation has a good recent report on the matter, which those who don’t believe us may want to scrutinize.  Recalling that Social Security benefits alone are simply not adequate to replace retirement income, millions of Americans just save too darned little to support their preretirement living standard when the time comes to stop working.  Indeed, many folk have exactly zero retirement savings, in the form of an IRA or other tax-favored retirement plan!  Can you believe it?!Read More

IRS Commish Heading For Early Retirement?

Seems as if that’s pretty much how it’s looking – the House Judiciary Committee has scheduled hearings to examine alleged misconduct by Commish Koskinen, we hear.  On May 24 (just next week) the Judiciary Committee will hear the findings of the House Oversight and Government Reform Committee’s investigation of the Chief Revenooer!

Congressman Jim Jordan (R-Oh) has expressed his view thusly:  “I applaud Chairman Goodlatte’s decision to hold hearings on the resolution for impeachment of IRS Commissioner John Koskinen.  Commissioner Koskinen failed to fulfill his duty to the American people by allowing back-up tapes containing potentially 24,000 emails to be destroyed.  He failed to inform Congress about the destruction of these back-up tapes in a timely manner……Alexander Hamilton wrote in the Federalist papers that impeachment should be used to protect the public against ‘the abuse or violation of some public trust.’  Commissioner Koskinen has most assuredly violated the public trust…….”Read More

Celebrate Your Freedom!

Tax Freedom, that is!  You actually just achieved it about a week ago, according to the Tax Foundation.  “Tax Freedom Day” 2016 just passed – on April 24, or 114 days (not counting “Leap Day”) into the new year.  And indeed, “Freedom” comes one day earlier than last year!

That’s the good news.  You will mope when you hear that Americans will spend more on taxes in 2016 than they will on food, clothing, and housing combined!  And when you include Federal borrowing, Tax Freedom Day won’t hit until May 10!  (The latest ever deficit-inclusive Tax Freedom Day occurred during World War II – on May 25, 1945.)Read More

IRS: No Deduction For Spiffy Duds!

So you think the fact that you spend some big bucks on the clothes you wear to work – in order to impress your customers and others – is reason enough to have Uncle Sam subsidize your expenditure.

Not so, say the Revenooers, as most recently expressed in the Tax Court case of Sofien Beltifa.  This guy was employed by a restaurant in New York City in 2011 as a bartender/manager.  His duties included “calling in” liquor orders, taking liquor deliveries, and ensuring that the bar was fully stocked at all times.  The restaurant did not require its employees to wear a uniform, though it did request employees to wear an all black ensemble (shirt, tie, pants) while working.  The taxpayer believed it was necessary to look his best because he was one of the faces of the restaurant.  “When you enter, you just see me and then you walk through,” he testified.  “You see the host, you see me.  I’ve got to look presentable.”Read More

Revenooers Reveal This Year’s “Dirty Dozen” Tax Scams

Always vigilant to the endless raft of tax shenanigans going on out there, IRS has released its latest list of favorites – warning taxpayers to be alert to the most egregious potential problems lurking.

  • Identity theft – This is the biggie.  IRS continues to hunt down and prosecute the crooks filing false tax returns using other folks’ social security numbers to secure refunds to which the bad guys are not entitled.
  • Phone scams – We’ve even received one of these – a call from a bad guy impersonating a real Revenooer claiming that unless we pay (a phony “unpaid tax” amount) arrest and other bad things awaits us.
  • Phishing – Though IRS never communicates with taxpayers about unpaid balances, the bad guys do, in an effort to steal personal information.  IRS warns you to be wary of strange emails and websites that are likely nothing more than invitations which, if accepted, will expose your personal information to theft.
  • Return preparer fraud – Deal with reputable professionals only, and beware of preparers, for example, who may pop up with a store front near you, promising all kinds of tax goodies if you engage them.
  • Offshore tax avoidance – IRS has gotten pretty good at nipping this one in the bud, but some folks still think they can hide assets and/or income abroad, keeping IRS at bay.  This can be really bad medicine and folks who play this game will find their pocket book much lighter if/when IRS catches up, not to mention the possibility of a stay in the slammer.
  • Inflated refund claims – Stay away from any preparer who asks you to sign a blank return, promises a big refund before even reviewing your records, or charges fees based on a percentage of your refund!
  • Fake charities – Make sure your donations go to only legit charities and not ones with “sound alike” names to those we all know and love.  If in doubt, check with IRS first (www.irs.gov) who keeps a list of all charities which are truly tax exempt organizations.
  • Falsely padding deductions on returns – this one speaks for itself.  Obviously a “no-no.”
  • Excessive claims for business credits – The fuel tax credit and research credit are high on IRS list of those credits which often are used by cheaters.
  • Falsifying income to claim credits – IRS warns you not to “invent” income so you can incorrectly qualify for such items as the earned income tax credit!
  • Abusive tax shelters – This one, too, used to be of more concern to IRS, which has become pretty good at shutting down these tax avoidance schemes, and even putting some of the folks pushing them in the clink.  If a peddler tries to sell you on one of these, and it “sounds too good to be true,” the likelihood is that it is.
  • Frivolous tax arguments – Believe it or not, there are still some promoters out there who try to encourage taxpayers to make unreasonable and outlandish claims (often based on phony constitutional arguments, or claiming that the income tax law is illegal) in an effort to reduce one’s tax liability.  Amuse yourself by reading about these blokes and their ridiculous arguments, but that should be as far as you go.  And by the way, the penalty for filing a frivolous return is $5,000.Read More

New Rule: IRS No Longer Hires Tax Cheats

Comforting, isn’t it?  To learn that IRS has adopted policies that prohibit its employees who cheat on their own taxes to work for Uncle Sam!

“I have no indication that anyone working for the IRS has not followed the updated procedures,” quoth Commish Koskinen in recent testimony before the Senate Finance Committee.

Recall that a report last year by the Treasury Inspector General for Tax Administration (TIGTA) found that 1,580 IRS employees had willfully failed to pay their taxes.  Of those, TIGTA found 61 percent retained their jobs.Read More

Magnanimous Obama Proposes Retirement Savings Incentives

REVENOOER RANTS – 2/8/16

Lest we be chastised for not giving credit where credit is due, we have to hand it to Obama for recently announcing much needed retirement incentives which will be included in his 2017 budget to be announced this week.  The simple fact is that, unlike the situation in our parents’ generation, most folks just don’t work their entire career with one company, which typically stashed away dough to fund employees’ retirement years.  Further, Obama notes that fewer than 10% of workers without access to a workplace retirement plan contribute to a retirement savings plan of their own.  So, government now proposes to encourage more employers to offer plans and create alternative savings arrangements for folks whose employer does not offer a plan.  To wit:

  • A proposal to triple the existing “startup” credit so small employers which begin offering a retirement plan would receive a tax credit of $1,500 per year for up to three years.  Further, small employers which already offer a plan and add auto-enrollment would get a tax credit of $500 per year for up to three years.
  • For the benefit of part-time workers, a proposal to require that employees who have worked for an employer for at least 500 hours per year for at least three years be eligible to participate in the employer’s existing plan.
  • A proposal which would require employers with more than 10 employees who do not presently offer a retirement plan to automatically enroll their workers in an IRA.  Employers with 100 or less employees that offer an auto-IRA would receive a tax credit of up to $3,000.
  • A proposal to increase the “portability” of retirement savings, in cases of employees who change employers through the course of their working life.Read More

Tax Court Reiterates Employee/Independent Contractor Distinction

Seems like an issue which just won’t go away – the question of whether a worker bee is an employee, or an independent contractor.  Makes a big difference in how the bloke reports his expenses.  If he’s an employee, those expenses go on Schedule A as itemized deductions, and are likely to be subjected to some limitations in the deductible total.  If he’s a contractor, the expenses go on his Schedule C, and further any net profit he reports there can qualify him for retirement plan deductible conributions as well.

So here comes taxpayer Jorge Quintanilla who, the Court notes, is an exceptionally skilled production worker on approximately 150 commercials shot in Southern California.  Jorge believed he qualified as a contractor and reported his expenses on Schedule C as noted above.  The Court further notes that the legal distinction between an independent contractor and a common-law employee is settled as a general matter, though it’s often murky in application.  Courts of various stripes, however, have set forth certain factors over the years, intended to guide one to the proper conclusion as to employee versus contractor, including:Read More

Cat Grabs IRS’ Tongue

Seems the Revenooers plan to go silent – they just don’t want to talk to you anymore.

The National Taxpayer Advocate, in her recent report to Congress, notes that for the past year and a half, IRS has devoted significant resources to creating a “future state” plan which details how the agency will operate in five years.  The plan is explained and developed in a document known as a Concept of Operations (CONOPS).

But CONOPS gives the Advocate a bit of heartburn – implicit in the plan (and explicit in internal discussion) is an intention of the part of the Revenooers to substantially reduce telephone and face-to-face interaction with taxpayers.  IRS is hoping that taxpayer interactions with IRS through online accounts will address a high percentage of taxpayer needs.

Consider:

  • Taxpayers place more than 100 million telephone calls to IRS each year and have done so in every year since fiscal year 2008.
  • Taxpayers make more than five million visits to IRS walk-in sites each year.
  • Taxpayers send an average of about ten million pieces of correspondence to IRS in response to proposed adjustment notices each year, to which IRS must respond.

Seems the Advocate thinks that if IRS substantially reduces the opportunity for folks to actually talk with IRS employees, many taxpayers will find it much harder to resolve their problems and will have to pay third parties to assist them.  (No doubt!)  Hence, the Advocate has recommended to Congress that IRS make the CONOPS available for public review and comment (heretofore not done).  Indeed, the Advocate has designated the future of taxpayer service (an oxymoron if ever there was one) as the number one most serious problem presently confronting taxpayers.  Quoth the Advocate:  “Of considerable concern….is what is not stated in the CONOPS.  Nowhere in the CONOPS is there a statement that the IRS plans to reduce telephone service or close walk-in sites, even though that is a central component of its strategy……The widespread expectation is that traditional taxpayer services – telephone assistance and face-to-face assistance – will be scaled back dramatically.  Based on our internal discussions with IRS officials, Taxpayer Advocate Service has been left with the distinct impression that the IRS’s ultimate goal is ‘to get out of the business of talking with taxpayers.’”

Who knows – maybe this is a good thing.

And the latest from Hillary, this week: a proposed 4 percent ‘fair share surcharge’ tax on the wealthy – now defined as folks making more than $5 million per year.

“This surcharge is a direct way to ensure that effective rates rise for taxpayers who are avoiding paying their fair share, and that the richest Americans pay an effective rate higher than middle-class families,” says a Clinton aide.

We’d call this a “broken record” argument, but who knows what vinyl is any more.

CONSULT YOUR TAX ADVISOR  – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article is a CPA recently retired from the firm of Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He welcomes comments at jquinn@ashleyquinncpas.com.

Watch out for “Hillarytax”

So, here we go – head first into another election year!  And you Hillary fans, out there, should not forget her recent promise to go even beyond Obama’s desired tax schemes, and “to make sure the effective tax rate paid by millionaires reflects a truly fair tax system,” according to one of her aide’s recently.

Recall that Obama, once upon a time, propounded the so-called “Buffett Rule” (named for his buddy, Warren Buffett, billionaire investor.)  Obama thinks taxpayers with adjusted gross incomes exceeding $2 million should pay a minimum tax rate of 30% – vastly higher than the rate applicable to various forms of investment income presently taxed at a top rate of 23.8%.

“The Buffett Rule says that millionaires should pay at least 30% income tax rates….and I want to go even farther,” chirped Hillary recently.  “I want to be the president of the struggling, the striving and the successful.”

Nice.

And obviously former Congressional Budget Office Director Doug Elmendorf likes Hillary’s prescription.  Quoth Doug, “If we make changes to federal spending and taxes, we should make them in ways that impose most of the burden on the affluent, because those are the people who have benefited the most from growth in output and income over the past few decades.”

Unstated by Dougie:  those are also the folks who take the risks and invest the capital which fuels growth and provides jobs, whom he and Hillary would propose to punish.

And isn’t it time somebody stood up to the morons pleading for abolition of the IRS?  We hold the Revenooers in as low esteem as anybody, but let’s get real.  Even National Taxpayer Advocate Nina Olson, in recently suggesting that IRS could, indeed, be smaller, points out the notion that the agency could be abolished is basically impractical.

“I don’t know how people think that would happen,” quoth Nina.  “People talk about, ‘Oh, all we need is a postcard’ (to file taxes on).  Well, you’re going to need some agency that you send a postcard to, and you’re going to need some employees to process that postcard.”

Not to mention someone to administer the system’s complex laws and regulations.

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is retired from the firm of Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He welcomes comments at jquinn@ashleyquinncpas.com.

IRS Hangs Tough On IRA 60 Day Rollover Rule

We’ve reported, many times, about various situations in which beleaguered taxpayers have been unable to meet the requisite 60 day IRA rollover rule (to avoid treating the dough coming out of the IRA in the first instance to be taxable), and IRS has bent over – showing its “kinder and gentler” side and not slapping the taxpayer with penalties.  Most of these cases have fact patterns indicating the delinquency was not the taxpayer’s fault, but often times that of the IRA custodian because of that guy’s administrative delays.

But in a recent private letter ruling, IRS refused to waive the 60 day rollover requirement for a taxpayer whose attempt to use an IRA distribution to buy an interest in a partnership failed because the IRA custodian couldn’t hold the interest – a mistake that the taxpayer did not learn of for almost a year.  In response to the taxpayer’s plea that the timeliness failure was due to his receipt of incorrect advice, IRS hung tough on the notion that the failure was in fact due to his decision to use IRA proceeds to fund a business venture.

IRS will consider several factors in determining whether to waive the 60 day rollover requirement, including time elapsed since the distribution, inability to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, postal error, errors committed by a financial institutions, etc.

In this case, the taxpayer’s financial advisor prepared the paperwork for the taxpayer to sign, and on November 21, 2012, the custodian issued a check payable to the partnership.  The taxpayer intended that his IRA purchase the shares, and that they be held by the custodian.

But as it turned out, due to some technicality in the partnership agreement, the custodian was eventually unable to hold the investment on behalf of the IRA.  The taxpayer believed that the financial advisor should have prepared paperwork to transfer the amount to a financial institution that could have held the partnership interest on behalf of the IRA.  The problem was not discovered until October of 2013 – obviously well beyond the 60 day rollover period.

Right or wrong, IRS conclusion, here, was that taxpayer’s failure to complete a timely rollover wasn’t due to any of the factors described above which have been held in the past to constitute valid excuses, but instead was due to his choice to use the IRA proceeds to fund a business venture.

Result:  taxpayer is forced to include the distribution in his taxable income for 2012.

And did you hear the latest from Hillary’s campaign re her tax proposals?  $250 billion in direct “investment” over the next five years.  Plus an additional $25 billion to fund a “national infrastructure bank.”  None of this dough comes from the “middle class,” of course, whose taxes Hillary would “cut.”  Hillary wants to give those folk “a raise,” while she hits the top 3% of earners to pay for all of this largesse.

Heard that one before?  How much is enough?

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He welcomes comments at jquinn@ashleyquinncpas.com.

Revenooers Comin’ After High Earners!

And the Treasury Inspector General for Tax Administration (TIGTA) doesn’t like the IRS’ “MO”.

In its most recent audit report, last week, TIGTA notes that IRS has taken steps to improve its audit coverage of high-income taxpayers.  But it should reevaluate whether the threshold of $200,000 for its High-Income and High-Wealth strategy results in an efficient allocation of audit resources.

Translation:  “Doesn’t everybody make $200,000 or more each year?”

TIGTA says that because IRS is devoting more audit resources to these taxpayers, it is important to know at what level of income or wealth taxpayers tend to begin establishing complex financial holdings that are at greater risk for noncompliance with the law.

IRS’ High-Income and High-Wealth strategy devotes nearly 50 percent of its high-income audits to taxpayers earning $200,000 to $399,999, whose tax returns potentially present the least productivity of all high-income taxpayers, says TIGTA.

“The IRS should reevaluate the income level it uses to identify taxpayers for its High-Income and High-Wealth strategy so that it can better allocate audit resources to the most significant audit risks,” says J. Russell George, TIGTA major domo.

The IRS Large Business and International Division (LB&I) established the Global High Wealth (GHW) Industry, which takes a comprehensive approach in auditing high-income taxpayers by extending audits beyond the individual tax return to the entities which these taxpayers control.

But IRS is using resources from three other LB&I industries to assist with auditing GHW cases, though no evaluation has been made regarding the impact of that decision on those other industries.  Further – and importantly – IRS cannot quantify its GHW audit performance because of limitations of IRS audit information systems, and GHW has not implemented a quality review process for its audits.

And you can thank Obama for recently eliminating a process (the “file and suspend method” of claiming Social Security benefits) via recent legislation which will nix this strategy used by married folk to maximize their lifetime benefits.

Under this approach, a higher earning spouse would claim benefits at his full retirement age (presently 66) but suspend the benefits until a later date allowing the Social Security credits to continue to grow.  The lower earning spouse would then claim benefits based on the higher earning spouse’s earnings record, which would be more than the benefits based on his or her own earnings record.  The new rules eliminate this opportunity for claims filed after April 30, 2016.

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He welcomes comments at jquinn@ashleyquinncpas.com.

No Penalty Despite Taxpayer’s 5th Amendment Claim

 

Some folks we’ve run into have a hard time with the questions on the individual tax return regarding the existence of foreign bank accounts.  “None of their business!” claim some, even though the law says that it sure is.

So here comes taxpayer Youssefzadeh who asserted his 5th amendment protection against self-incrimination in objecting to provide certain info called for on  Schedule B of his 2011 tax return.  Along come the Revenooers, however, slapping our boy with the $5,000 frivolous return penalty, which the law requires in cases where the return doesn’t contain info on which the substantial correctness of the self-assessed tax may be judged.  Even though his return did include the numerical information, including the total amount of interest income which he received for the year.

“Whoa,” said the Tax Court, in concluding that indeed the return was not frivolous.  Indeed, noted the Court, the document filed by the taxpayer did contain sufficient information for IRS to judge “the substantial correctness of the self-assessment.”  The Court found that the return was sufficient to determine its substantial correctness – which doesn’t necessarily require that It be “completely correct.”  The Court noted that the total amount of interest was included on the return, thus distinguishing Youssefzadeh from other tax protestors who merely fill out a return with zeroes on every line.

Anyway, we don’t advise folks to just ignore information requests on returns (like the queries about foreign bank accounts).  This guy may have avoided the frivolous return penalty in his case, but playing fast and loose with the foreign financial account requirements presently permeating the law often is just asking for trouble.

And here’s a novel idea – advanced by Congressman Andy Harris (R-Md) whose recent bill would permit individuals to prepay their federal estate tax during their lives by increasing their income tax obligation by one percent of their adjusted gross income, generally, and foregoing basis adjustments at death.

The  estate tax would be avoided only if the taxpayer paid at least seven years of additional income tax.  If the bloke otherwise dies fewer than seven years after making the election, the taxes paid  would be allowed as a credit against the estate tax liability.

Sounds like one Bernie would favor, don’t ya think?

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He welcomes comments at jquinn@ashleyquinncpas.com.

Don’t Forget to Sign the Darned Return!

So you go through all the hassle of getting your records together and getting that return assembled, but at the eleventh hour, you send that joint return to the Revenooers without having your spouse sign the darned thing.

Bad Karma – as learned the hard way by taxpayers Mr. and Mrs. Reifler, who the Tax Court recently slammed down hard as technically not having actually filed a timely return at all in the circumstances!

Mr. and Mrs. Reifler, you see, were married folk who even employed an accountant to prepare their returns.  Mr. Reifler had significant business experience.  For tax year 2000, Mr. Reifler signed the return and left it for the Mrs. to sign but she didn’t – for whatever reason.  Mr. Reifler didn’t notice the omission when he mailed it to IRS before the October 15, 2001 extended due date.

IRS and the taxpayers both acknowledged that Mrs. Reifler relied on her hubby to handle the family financial and tax matters, including preparation and filing of the tax returns, and that she, indeed, intended to file a joint return for 2000.

In any case, the IRS Service Center returned the 2000 return to the taxpayers because of the missing signature (as is the usual procedure in our experience) though the taxpayers claim there was no explanatory information from the IRS regarding why they sent the package back.  Mr. Reifler thought nothing of it because he had requested copies of his tax returns from time to time from IRS for various business reasons.  But unfortunately, upon receipt of the returned return, the taxpayers did not subsequently send the original return back to IRS with the requisite signature.

Sooooo, in 2002, IRS issued a delinquency notice to the taxpayers, informing them that the 2000 return had not actually been received in Uncle Sam’s grubby hands, whereupon the taxpayers then did both sign and return a second copy of their 1040.  And it was this second copy which IRS officially accepted as the originally filed 2000 return – albeit delinquent at this point.

The ensuing beef between the taxpayers and the IRS led the parties to an eventual day in the Tax Court, where the taxpayers made two arguments in support of their claim that the original 2000 return (without Mrs.’ Signature) was validly and timely filed.

  • They first argued the so-called “substantial compliance doctrine,” claiming that their tax return need not have been “perfect” to be valid, as sanctioned by the Supreme Court previously in the Zellerbach Paper Co. case, noting that if a return “purports to be a return, is sworn to as such…and evinces an honest and genuine endeavor to satisfy the law,” it will be treated as a return.
  • The second argument advanced by the Reiflers was based on the so-called “tacit consent doctrine,” premised on the notion that absent Mrs. R’s signature, they truly intended to file a joint tax return.

“No Bueno” concluded the Tax Court on both counts.  And indeed, adding insult to injury as

usually happens, the Court also found that the taxpayers did not exercise ordinary business care and prudence in handling the original 2000 return when IRS sent it back, therefore concluding that the failure to file penalty was applicable!

Moral of the story?  Make sure that both hubby and wifey sign before they seal and deliver!

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He welcomes comments at jquinn@ashleyquinncpas.com.