Tax Court Petition

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  • #42021
    James Wade
    Participant

    Everyone,

    I am filing a tax court petition for a client regarding a CP2000 notice. The IRS made the following adjustments: 1) added unreported income from 1099-K (this is correct) 2) denied an IRA deduction taken on the return (again, correct – client took deduction for 401k contribution); 3) reduced medical expenses due to AGI change, which resulted in itemized being limited to standard (correct AGAIN, client took pre-tax health insurance deducted on W-2 as itemized); and 4) assessment of accuracy related penalty.

    Client does, however, have expenses that IRS did not give him credit for as part of response to CP2000. Total at issue is $10k, including penalties. So not a lot but for this client it is a huge chunk of money. My question is: how detailed do I have to get on the statement of issues and facts relied upon?

    My initial thought is we just say that the issues are 1) we disagree with self-employment income as we have deductions (and substantiation) which reduces that amount and 2) we disagree with the penalty based on change in income due to expenses and/or reasonable cause/lack of managerial approval (Chai defense). For facts, state that we have expenses that offset self-employment income.

    I am an attorney, so I may be overthinking it but this just seems kind of too simplistic. I feel like I should do this like a complaint where I list out facts like when CP2000 received, when NOD issues, etc. etc. Please let me know if I am overthinking this or I am on the right track that I probably need to lay out everything (as facts) from first contact to filing the petition to set the stage.

    Thank you in advance.

    Jim Wade

    #42039
    Bryan Haarlander
    Participant

    Jim, while TC petition does not need to provide substantiation, I trust that you have substantiation to support statement that SE expenses were ignored. Does TP have sufficient evidence to support SE deductions? I would have thought that this substantiation would have been provided at the CDP hearing. If those deductions were not accepted at the CDP hearing, you need to understand why. To simply resubmit the same proof of expenses that were previously denied will likely result in the same result. With respect to Chai defense for penalty assessment, it is my understanding that not all penalties need written managerial approval. I believe AUR generated CP 2000 notices do not need managerial approval as these are computed generated. If total assessment, including penalties is $10K, did you attempt to have penalties abated at CDP hearing by agreeing to tax assessment. Also, did you check transcripts to see if TP is eligible for FTA?

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