My chronicle of how the IRS and Tax Court affect taxpayers' daily lives.

See below for important disclosures.

Wednesday, November 25, 2009

What are you thankful for?

Edward Maule, a Professor of Law at Villanova and author of the blog, "Mauled Again" put together a great blog post for today. His stuff is generally very interesting, so I highly recommend adding it to your reading. Here is an excerpt from today:

I am thankful for taxes. Taxes bring balance to what would otherwise be an unbalanced economic system. Without taxes, much of what gets taken for granted would not exist, or would command a higher price. It might be trite to claim that taxes represent what must be paid for a civilized society, but it’s true.

I am thankful that as bad as our federal, state, and local tax systems are, that I don’t live in a place that would subject me to the sort of tax systems found elsewhere in the world. Not that the existence of worse systems should give our tax systems a free pass, but it’s time to acknowledge that at some of the tax law writers get some of the provisions right some of the time.

I am thankful that I live in a country where a mistake on a tax return or tax assessment doesn’t bring an immediate transportation to prison, or worse.

I am thankful that I don’t live in the past, in societies that had no tax systems because they relied on serfdom, plunder, and confiscation by royals, nobles, and ecclesiastics, none of whom were selected by ballot or referendum.

I am thankful that I continue to be subjected to user fees that are imposed and collected with little or no inconvenience to me. I appreciate that I have the ability to drive through a toll booth without completing a 10-page form, and often can do so without stopping and fishing for coins or paper currency.

I am thankful that I can criticize the various tax systems in this nation without having my passport revoked, my goods seized, my property invaded, or my liberty constrained.

I am thankful that I can criticize Congress, state legislatures, and local government officials for their woeful record on tax policy and tax legislation. If they were doing the top-notch job that I prefer that they do, I’d have much less about which to write. There are only so many things one can say about chocolate.
Aaron's Take:  Agree wholeheartedly.  I am thankful for our tax system, which keeps getting changed in the name of "simplification" and ends up more complicated.  I am thankful for job security!

Tuesday, November 24, 2009

Innocent Spouse Relief Denied

Arianel Torres and Franz Hurtado entered into a state a marrital bliss in August 1996 which ended with their separation in August 2001 and eventual divorce in May 2003.  Filing status on an individual's tax return is determined on their marital status as of December 31 of the tax year.  Accordingly, Ms.Torres filed a joint tax return with Mr. Hurtado for the tax year 2001.  The joint return showed community income of nearly $72k with an unpaid tax liability of $6,243.  Though the couple did not live lavishly, they did use the money to purchase a vehicle, loan money to Ms. Torres' mother, and make payments on her condo in Mexico. 

Ms. Torres petitioned the court for Innocent Spouse Relief stating that she did not sign the tax return and was unaware of the tax due.  Additionally, she stated that did not know of the balance due and did not have the ability to pay the tax due because she didn't have access to her husband's bank account.  Her court testiony was inconsistent, and she recanted these statements, which were signed under penalties of perjury. 

The government is allowed to relieve a spouse of the responsibility to pay a portion or all tax that is due on a jointly filed tax return, if the circumstances allow.  Factors that the IRS examines include economic hardship, knowledge or reason to know, legal obligation of the other spouse (what a divorce decree may say), and benefit of the underpayment. 

Ms. Torres stated that she would suffer substantial economic hardship if she was kept liable for the tax.  She did not submit any documentation that would prove this hardship, and instead proved the IRS' case by showing she had assets that were able to be liquidated against the debt.  Though the court sided with her concerning her lack of knowledge of the liability as well as her current compliance history, the court felt that since the divorce decree was silent as to the outstanding liability, that Ms. Torres received significant benefit from failing to pay the tax, and her inability to prove a hardship outweighed the factors in her benefit.  She is considered jointly and severally liable for the tax due.

Aaron's Take:  Married couples in most of the western states fall under community property laws.  This means that when you file a joint tax return, you will be considered 100% liable for the tax, even if your ex-spouse should have paid half.  You should consider very carefully if you should file jointly if you think your spouse has less honesty genes than you would like him/her to.  The IRS will go after the easier target, and if you are easy to find, thats you!

Thursday, November 19, 2009

Expert Witness works against a Tax Preparer

Thomas Turner falsely represented himself to his customers, stating that he was formerly employed by the IRS, and implying that he understood tax laws and regulations because of his special relationship with the IRS.

During the trial, an actual IRS agent took the stand to educate the jury on the tax consequences of Mr. Turner's overstatements, but Mr. Turner objected, stating that the agent did not qualify as an expert.

Aside from filing bogus returns on behalf of his clients, Mr. Turner also was a non-filer of his own returns due to disagreements over his 1989 tax return. His statement that he wanted to "screw the IRS" made it into the record.

Mr. Turner's comments that "he hated the IRS and that the IRS wouldn't get a dime from him," weighed heavily against him, as he was unable to prove that he could separate this attitude from his personal dealings, instead of when he was preparing returns from others.

Aaron's Take:  If you are in the business of preparing returns, it is best not to share your opinion of the IRS, especially if that opinion is similar to those of tax protestors. Mr. Turner's desire to screw the IRS could easily have been extended to the returns that he prepared, making him liable for preparing false returns. Additionally, if you are going to market yourself as an "expert" because you are a former IRS employee, you cannot then turn around and state that the IRS Agent that is testifying against you is NOT an expert.  

USA v. Thomas A. Turner, USDC, W.D. Kentucky 2009-2 USTC

Tuesday, November 3, 2009

A break in the update series for financial news ....

I've previously mentioned Lee Eisenburg of Able Financial Group and how he sends me great e-mails which have interesting information "By The Number$."  Interesting facts today include:

TAX STATS - In 1980, the top 1% of US taxpayers earned at least $81,000 in adjusted gross income (AGI), accounted for 8% of all AGI nationwide and paid 19% of all federal income tax. In 2007 (the most recent year for which data is available), the top 1% of US taxpayers earned at least $410,000 in AGI, accounted for 23% of all AGI nationwide and paid 40% of all federal income tax (source: Internal Revenue Service).

OBAMA’S STOCK MARKET - Since Barack Obama was elected President of the United States on 11/04/08 (i.e., 1 year ago this upcoming Wednesday), the S&P 500 has been up +10.1% (total return) through the close of trading last Friday night. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research).

ONE DAY - The best 1-day performance for the S&P 500 since Barack Obama was elected President on 11/04/08 took place on Monday 3/23/09 when the stock index gained +7.1% (total return) in just 6 ½ hours of trading (source: BTN Research).

SEVEN, NOT EIGHT - The S&P 500’s streak of 7 consecutive up-months (on a total return basis) ended last Friday. The stock index lost 1.8% in October but has still gained +43.1% over the last 8 months (source: BTN Research).

FOR A NUMBER OF REASONS - 30% of Americans age 45-64 surveyed in late July 2009 have stopped contributing to a pre-tax retirement plan (source: AARP).

WAY UP - The average nationwide price of gasoline has increased $1.08 a gallon YTD to $2.70 as of last Friday while the price of oil has increased $32.89 a barrel YTD to $77.49 (source: AAA, NY Mercantile).

BIG BUCKS FOR THE SIXTH GRADER - The average cost for 1-year of college education at an in-state public college is $15,213 for the 2009-10 school year (including tuition, fees, room and board). The total 1-year cost has increased +6.5% per year over the last 30 years. If that same annual rate of inflation continues into the future, then a 6th grader today will ultimately pay $104,000 for his/her 4-years of education at an in-state public college during the years 2016-20 (source: College Board).
Aaron Blau, E.A. is the Vice President of the Central Arizona Chapter of Enrolled Agents and a member of the Government Relations Committee of the National Association of Enrolled Agents. The opinions and ideas expressed here are in no way representative of the official position of the National Association of Enrolled Agents, Arizona Society of Enrolled Agents or the Central Arizona Chapter of Enrolled Agents.

For official comments, please e-mail NAEA Director of Communications at or Arizona Society president

"To ensure compliance with the requirements imposed by the IRS, we inform you that, to the extent this communication (or any attachment) addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties imposed under the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein (or in any such attachment). In addition, nothing herein is intended to convey an expression of an opinion as to the likelihood a tax position would ultimately prevail if challenged by the IRS. This communication is intended solely for the person to whom it is addressed; no one else should rely on the tax advice provided herein. The person to whom this advice is addressed is under no obligation to keep the advice or matters related to the advice confidential."