Tax Court Corner: How Did These Two Cases Ever Get to Court?by
There are numerous steps that must be taken before a case ends up in Tax Court. You would think that somewhere along the way, someone, anyone, would have told these pro se (representing themselves) taxpayers that they were wasting their time in court.
The process begins when a tax return is examined. If you don’t agree with the IRS, you appeal to the manager. If you disagree with the manager, you file a formal appeal, where they weigh the “hazards of litigation.” Basically, this means they determine whether it costs the government more to go to court or to settle in appeals. If all of that fails, then you can petition the Tax Court.
Before a case is heard, there is a pretrial mediation, where an independent party tries to reconcile the government’s position with that of the taxpayer.
It’s difficult to comprehend that with all of these steps, no one said anything to the two plaintiffs in these cases.
Carey C. Mills v. Commissioner, TC Memo 2016-180, is a case in which the petitioner decided to change his method of accounting – from the cash method to the accrual method – without asking permission. With his arbitrary change of accounting methods, Mills deducted legal bills for which he was billed but not paid. His deficiency was $9,068 and $9,861 for 2011 and 2012, respectively, which were the years in question.
Mills contended that he was instructed to change his accounting method by an IRS agent. He stated that the burden of proof was no longer on him; it was now on the Commissioner.
This is where a little professional advice may have helped Mills. The IRS is not responsible for any advice given to taxpayers. If an agent told you that your method of accounting should be changed, you would still have to file Form 3115, Application for Change in Accounting Method. The burden of proof does not simply shift to the government (See Estate of Bongard v. Commissioner).
Finally, we have Shenita A. Hill v. Commissioner, TC Memo 2016-181, which was a remarkably simple case. In the court’s answer, it concluded that the petitioner took care of the matters of law in her response.
Let me explain. In 2013, Hill used an online service to file her tax return. She excluded $28,629 of unemployment compensation, stating that she didn’t know it was taxable; she thought it was unearned income. In her response, Hill admitted that the amount was taxable, so the government moved for a summary judgment, which means the facts are such that the court doesn’t have to hear the case and the judge is asked to rule without a trial. The court obliged and issued a judgment for the Commissioner.
This was just a walk-through of what is happening in Tax Court these days.
Craig W. Smalley, EA is the CEO and Founder of CWSEAPA®, PLLC, located in Orlando, Florida, with clients all over the country in every industry. He has been admitted to practice before the IRS as an Enrolled Agent, and has a Master's Certificate in Taxation from UCLA. He has been in practice since 1994, specializing in individual, partnership...