Taxable Talk

A few years ago, there were two Tax Court cases resolved by closing agreements (a closing agreement is a settlement agreement of the case): God’s Helping Hands Living Estate Plan Trust, John M. & Thelma Smoll, Trustees v. Commissioner, docket No. 8468-01, and John M. & Thelma Smoll, Trustees v. Commissioner, docket No. 8489-01. These cases looked at whether the Trust should be recognized for tax purposes. The closing agreements stated, among other things, that the Trust would not be recognized for tax purposes and that the taxpayers would report their taxes for those years and all future years.

You’re way ahead of me. Of course they didn’t do that, or I wouldn’t be writing this. In 2000 and 2001 the taxpayers used the trust (after signing an agreement that said they wouldn’t do that). In 1999, 2002, and 2003 they didn’t file returns (at least they didn’t use the trust).

So not only do the taxpayers owe the tax, and interest, the IRS asserted that they committed willful fraud. As the Court noted,

“At trial and by facts deemed stipulated, respondent established by clear and convincing evidence that petitioners understated their 2000 and 2001 Federal income tax with the intent to commit fraud and that petitioner failed to file his 1999, 2002, and 2003 returns with the same intent…Petitioners have a pattern of failing to file tax returns and understating their income when they do file income tax returns. Petitioners also failed to maintain adequate records or cooperate with respondent, and they consistently provided respondent’s representatives with implausible or inconsistent explanations for their behavior.”

The Court went on, noting that the actions demonstrated that they deliberately and willfully committed fraud.

There’s a moral to this story. If you sign a closing agreement with the IRS, you had better follow it, because they’ll be watching you.

Case: Smoll v. Commissioner, T.C. Memo 2006-157

This entry was posted on Monday, July 31st, 2006 at 8:50 pm and is filed under Tax Court. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.