Yesterday, there were three interesting Tax Court decisions. Joe Kristan of Roth Tax Updates has an excellent post on the first case. In that case, Merlo v. Commissioner, the unlucky taxpayer found out the “gotcha” of incentive stock options. If you are the recipient of such options, take a look at Joe’s post on this case now. ISO’s have a wonderful tax advantage…but if the option tanks….
The second case has to do with something quite basic: a change of address. In Pragasm v. Commissioner, the taxpayer wanted to have a hearing on a collection (levy/lien) dispute. The IRS said that they weren’t required to hold one because the taxpayer never responded to their notices. The Court sided with the IRS. Just a reminder, if you move, notify the IRS (and your state tax agency, if applicable); you can download Form 8822 here and mail it (certified mail, return receipt requested, of course) to the IRS.
The third case has to do with regulatory requirements. Last May, the Tax Court ruled in Zapara v. Commissioner that the IRS failed to comply with §6335(f) of the I.R.C. That section requires the IRS to sell seized property within sixty days following a request by the taxpayer (and have the proceeds of the sale credited against the tax, penalties, and interest owed). The taxpayers in that case had, the Court ruled, requested such a sale and the IRS did not sell the property (in this case, stock).
The IRS asked the Tax Court to reconsider their May 2005 decision. The IRS claimed that the taxpayers untimely raised a new issue, that the evidence doesn’t support the decision, and that the Court doesn’t hold the power to make the relief ordered in the earlier decision. The IRS lost on all three counts, and the motion for reconsideration was denied (decision here).
Why is this final case important? The Tax Court usually rules based on regulations and paperwork. If you can show paperwork/backup for your actions, and that you followed the regulations/Tax Code, you will usually win. This holds true for the IRS, too. The IRS’s paperwork showed the request to sell the stock, and the stock wasn’t sold. The moral is clear: document, document, document; and you have an excellent chance of winning your case.