The United States Tax Court in Ziegler v. Comm’r of Internal Revenue, Docket No. 4466-22L, filed June 13, 2025 sustained a Motion for Summary Judgment by the government in relation to the taxpayers’ action filed under IRC section 6330 to challenge a Notice of Determination by IRS Appeals to sustain collection action by Federal tax levy. Taxpayers owed income taxes for multiple years that exceeded $350,000. Taxpayers filed their own returns. Appeals determined the taxpayers could pay $600 per month. The record showed that from the outset, the taxpayers indicated that Mr. Ziegler’s health should be considered in determining whether the IRS levy action was appropriate. The taxpayers wanted to be placed in Currently Not Collectible (CNC) status. The Court was presented with evidence showing that Mr. Ziegler had leukemia and potential heart issues. In essence, the taxpayers’ concern for health issues was the primary reason they argued they should be placed in CNC status. But, their actual actions were their undoing. The Court, while explaining there are remedies to deal with dramatic health situations as it relates to tax collections, expressed dismay that the taxpayers had purchased a new vehicle with a value of $51,000 and took on a car payment of $800 per month. This action caused the taxpayers to own two vehicles…while neither of them were employed. Additionally, the Court reviewed their bank account statements and found that over a six month period, of the 207 transactions on the statements, only 8 were medical related…and none were significant or catastrophic in any way. Ultimately, the Court found that the taxpayers “purchase of [the] vehicle demonstrates [taxpayers] cavalier attitude about the tax liabilities, and also the fact that they were not overly concerned with the potential high cost of Mr. Ziegler’s medical bills.” The levy was sustained.
The United States Tax Court in Remus Beleiu and Naomi J. Beleiu v. Comm’r of Internal Revenue, Docket No. 16518-19, Filed July 2, 2025 ruled that the IRS had carried its burden to prove civil fraud against Mrs. Beleiu and therefore she would incur $100,000 of fraud penalties. The taxpayers are a married couple. It appears that Mr. Beleiu owned two separate businesses – an IT business and a consulting business. Mrs. Beleiu is a financial analyst for a Hospital System. She has an undergraduate degree in accounting and an MBA with a concentration in accounting. She self-prepared the returns. While her education was a factor, other actions she took mattered a good deal to the Court. Three tax periods were picked for Exam. Mrs. Beleiu attended an office conference with the Examiner without representation, and without many documents requested. In particular she excluded all documentation from one business. The Examiner set another appointment and though the taxpayer appeared, she still did not present information requested. At that point, Exam subpoenaed bank records from two banks and performed a deposit analysis. While it was clear that the Schedule C from the first business, (there was no Schedule C’s filed for the second business), didn’t reflect enough gross revenue as compared to 1099-Misc’s and 1099-K’s, it became apparent to the Examiner was that there were other bank accounts referenced on bank statements associated with another business owned by the taxpayers. Prior to issuing a report, the IRS had a third meeting, with newly hired counsel and accountants for the taxpayer. At that meeting the IRS attempted to reconcile the bank statements with the documents provided by the taxpayer and their representatives. This failed because Mrs. Beleiu had not disclosed the existence of all bank accounts, or the second business. The opinion proceeds to review the 11 badges of fraud. Two factors were neutral, or against the fraud determination – that the taxpayer had not filed a return, and that the taxpayer operated an illegal business. Nine factors weighed against taxpayer: understating income, keeping inadequate records, giving implausible or inconsistent explanations of behavior, concealing income or assets, failing to cooperate with the tax authorities, supplying incomplete or misleading information to a tax return preparer, providing testimony that lacks credibility, and dealing in cash. It certainly didn’t help the taxpayer’s case for her to testify that she didn’t really hide the other business, since providing bank statements that showed transfers to that businesses’ accounts were provided!
The Tax Court in Vanover v. Comm’r filed April 22, 2025 at T.C. Memo 2025-37 held that the requesting spouse should be granted partial relief under Section 6015(c) with respect to an understatement of the non-requesting spouse, but be denied relief under section 6015(b)(c) and (f) for all other items. Seems like all of the Innocent Spouse cases are lengthy, and this one is no different at 16 pages plus 2 pages of footnotes. Most times this is due to the lengthy analysis of factors for equitable relief under 6015(f). This case is no different in format to others in that regard. What is of interest and highlighted here is the analysis under 6015(b) and (c). This case is fact heavy, from a nasty divorce that included a physical altercation, to financial mismanagement on behalf of all taxpayers, the Court did a good job of setting the scene. What’s key to know about 6015(b) and 6015(c) is that they both require understatements of income. Whereas 6015(f) can be used if there is an underpayment of tax. Under 6015(b), if an additional assessment arises, relief from joint liability can be had if the item is attributable to the other spouse. The requesting spouse must establish that when they signed the return, they did not know and had no reason to know that there was a possible understatement. This is the “traditional,” original form of innocent spouse relief. Under 6015(c), a requesting spouse shall be relieved from liability for deficiencies allocable to the nonrequesting spouse. In other words, they separate the liability. Under this provision, in order to obtain relief, you must be divorced, legally separated, or living apart for at least 12 months. The case carefully sorts through all factors of each statute, ultimately denying most relief for the requesting spouse. Regardless, it is much more common to see equitable relief cases under 6015(f), so this review is rather helpful.
The Tax Court in the case of Applegarth v. Comm’r, filed December 10, 2024 at T.C. Memo 2024-107, does a good job of exploring the various statutes associated with entitlement to refunds and whether or not equitable tolling has any effect on those statutes. The IRS issued Notices of Deficiencies on two periods – 2014 and 2015, causing the Taxpayer to petition the Court. Seems the taxpayer in this case did nearly everything correctly, except file his return timely. For both years, he filed extensions. And, for both years, he paid significant sums of money towards his tax debt before the due date of the extended return. He just didn’t file his returns and ultimately the IRS sent him notices of deficiencies based on estimated taxes. For 2014, the IRS determined there was a $4,465 deficiency, but his return reflected an overpayment of $78,472. For 2015 the IRS determined there was a deficiency of $25,576 and the return showed an overpayment of $9,603. While the Court explored many statutes, it is worth highlighting this one in part: 6511(a): “[c]laim for refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer within 2 years from the time the tax was paid.” All payments of tax were beyond the statutory time frames of this provision. The taxpayer conceded that if these rules applied, he was out of luck. However, he attempted to argue that equitable tolling should apply. The common law concept that allows a statute to stop running for equitable reasons. The opinion is short on explanation of the taxpayer’s rationale, but through its analysis of the statutes concludes that: “in our view neither statutory provision permits equitable tolling.”
In Hudson v. Comm’r T.C.
Summary Opinion 2017-7, filed February 8, 2017, the Tax Court granted
equitable relief from joint and several liability under section
6015(f). It is a rare case that the IRS grants relief to a taxpayer
that requests innocent spouse relief, unless that individual is legally
separated or divorced from the jointly liable taxpayer. The taxpayer and
her husband remained legally married, but were essentially estranged.
Petitioner remained in the marriage because she “regards the vow of
marriage as sacrosanct and does not believe in divorce.” The liability
reported on the face of the return was largely from the early withdrawal
penalty associated with Petitioner’s husband taking a distribution from
his retirement account to finance the purchase of a piece of
residential real estate – in his name alone. Though petitioner resided
at this residence, the Tax Court did not believe she enjoyed a lavish
lifestyle. Petitioner held a bachelors degree and, while she was out of
the workplace caring for their children during the year at issue, she
later became employed in her field. At the time of filing the Petition
in the Tax Court, she was unemployed and struggled with reasonable
living expenses. The Court could not provide “streamlined” relief
because the Petitioner remained married. That triggered a facts and
circumstances analysis where economic hardship and lack of significant
benefit factored heavily into the Court’s grant of liability relief.
IRS institutes Early Interaction Initiative for Employment Tax matters
It
is expected that the IRS will be instituting swifter action against
employers that are falling behind on their Federal Tax Deposits (FTD’s)
for employment taxes. Those taxpayers who have had interaction with a
field Revenue Officer are likely hearing from those Revenue Officers
more quickly if they fall behind on their required deposits. However,
the IRS announced in December 2015 that it is instituting efforts to
identify employers who appear to be falling behind on their tax payments
– apparently even before their employment tax return is being filed.
The IRS has indicated that
their identification efforts will result in letters, automated phone
messages, and other communications which could include a visit from a
field Revenue Officer. The IRS has indicated that this effort will
reduce the likelihood of the problem becoming uncontrollable. Many
taxpayers simply do not realize how steep the penalties can be for
failure to properly make tax deposits, pay employment taxes timely, or
failure to file timely returns. Further, it is unlikely that most
taxpayers understand the personal liability that can be assessed from
unpaid employment taxes. A liability that is not dischargeable in
bankruptcy.
While the education efforts
are beneficial, certainly there is an enforcement aspect of this
activity by the IRS. The IRS readily admits that two-thirds of federal
taxes are collected through the payroll tax system. With a reduced
budget, this activity makes good sense for the IRS. However, it is most
likely going to be most burdensome for small businesses.
No doubt early action is
best. If you know you have been falling behind on your payroll tax
obligations and need assistance planning before you hear from the taxing
authorities, feel free to call.
IRS Announces 2015 Inflation Adjustments on Several Tax Benefits and Retirement Adjustments
The IRS recently announced annual inflation adjustments for several tax provisions, which will apply to the 2015 tax year. Some of the affected provisions include: income tax rate schedules, the estate tax exemption, long-term care adjustments, and retirement adjustments. Below is a summary of those adjustments.
Tax Rates. Beginning in the 2015 tax year, the following tax rates will apply:
If the Taxable Income Is:
The Tax for Married Individuals Filing Jointly is:
Less than or equal to $18,450
10% of the taxable income
Over $18,450 but not over $74,900
$1,845 plus 15% of the excess over $18,450
Over $74,900 but not over $151, 200
$10,312.50 plus 25% of the excess over $74,90010% of the taxable income
Over $151,200 but not over $230,450
$29,387.50 plus 28% of the excess over $151,200
Over $230,450 but not over $411,500
$51,566.50 plus 33% of the excess over $230,450
Over $411,500 but not over $464,850
$111,324 plus 35% of the excess over $411,500
Over $464,850
$129,996.50 plus 39.6% of the excess over $464,850
If the Taxable Income Is:
The Tax for Heads of Households is:
Not over $13,150
10% of the taxable income
Over $13,150 but not over $50,200
$1,315 plus 15% of the excess over $13,150
Over $50,200 but not over $129,600
$6,872.50 plus 25% of the excess over $50,200
Over $129,600 but not over $209,850
$26,722.50 plus 28% of the excess over $129,600
Over $209,850 but not over $411,500
$49,192.50 plus 33% of the excess over $209,850
Over $411,500 but not over $439,000
$115,737 plus 35% of the excess over $411,500
Over $439,000
$125,362 plus 39.6% of the excess over $439,000
If the Taxable Income Is:
The Tax for Unmarried Individuals is:
Not over $9,225
10% of the taxable income
Over $9,225 but not over $37,450
$922.50 plus 15% of the excess over $9,225
Over $37,450 but not over $90, 750
$5,156.25 plus 25% of the excess over $37,450
Over $90,750 but not over $189,300
$18,481.25 plus 28% of the excess over $90,750
Over $189,300 but not over $411,500
$46,075.25 plus 33% of the excess over $189,300
Over $411,500 but not over $413,200
$119,401.25 plus 35% of the excess over $411,500
Over $413,200
$119,996.25 plus 39.9% of the excess over $413,200
If the Taxable Income Is:
The Tax for Married Individuals Filing Separate Returns is:
Not over $9,225
10% of the taxable income
Over $9,225 but not over $37,450
$922.50 plus 15% of the excess over $9,225
Over $37, 450 but not over $75,600
$5,156.25 plus 25% of the excess over $37,450
Over $75,600 but not over $115,225
$14,693.75 plus 28% of the excess over $75,600
Over $115,225 but not over $205,750
$25,788.75 plus 33% of the excess over $115,225
Over $205,750 but not over $232,425
$55,662 plus 35% of the excess over $205,750
Over $232,425
$64,989.25 plus 39.6% of the excess over $232,425
If the Taxable Income Is:
The Tax for Estates and Trusts is:
Not over $2,500
15% of the taxable income
Over $2,500 but not over $5,900
$375 plus 25% of the excess over $2,500
Over $5,900 but not over $9,050
$1,225 plus 28% of the excess over $5,900
Over $9,050 but not over $12,300
$2,107 plus 33% of the excess over $9,050
Over $12,300
$3,179.50 plus 39.6% of the excess over $12,300
Estate Tax Exemption.
The Estate Tax is a tax imposed on the transfer of property at a
person’s death, for any portion of the decedent’s gross estate that
exceeds the Federal Estate Tax Exemption. This year the estate tax
exclusion has increased from a total of $5,340,000 to $5,430,000. This
means that decedents who die in 2015 have an estate tax exclusion that
has increased by $90,000 from the previous year.
Long-term Care. Deductions for Long Term Care Insurance Premiums have increased slightly from 2014. The 2015 deductible limits under §213(d)(10) for eligible long-term care premiums are as follows:
Attained Age Before Close of Taxable Year
Limitation on Premiums
40 or less
$380
More than 40 but not more than 50
$710
More than 50 but not more than 60
$1,430
More than 60 but not more than 70
$3,800
More than 70
$4,750
Retirement Adjustments.
The elective deferral (contribution) limit for employees who
participate in 401(k), 403(b), most 457 plans, and the government’s
Thrift Savings Plan has increased from $17,500 to $18,000. In addition,
if you are 50 or over you can contribute an additional $6,000 as a
catch-up contribution. However, the limit on annual contributions to IRA
accounts remains unchanged at $5,500 with the catch-up contribution
limit remaining $1,000.
The deduction for taxpayers making
contributions to traditional IRA accounts is phased out gradually
starting at an Adjusted Gross Income (AGI) of $61,000 for single
taxpayers and heads of households, $98,000 for married couples filing
jointly (when the spouse who makes the IRA contribution is covered by a
workplace retirement plan), and $183,000 for an IRA contributor not
covered by a workplace retirement plan but who is married to someone who
is covered.
The deduction for taxpayers making
contributions to a Roth IRA is phased out gradually starting at an AGI
of $183,000 for married couples filing jointly and $116,000 for singles
and heads of households.
Lastly, the AGI limit for the saver’s
credit (retirement savings contribution credit) for low and moderate
income workers has also increased slightly for 2015. The credit is now
$61,000 for married couples filing jointly, $45,750 for heads of
household, and $30,500 for singles and married couples who file
separately.
If you have any questions about how these
adjustments might affect your tax situation, please feel free to contact
our office for further assistance.
Texas Receives “High Performance Bonus” Under Federal Worker Misclassification Initiative:
The U.S. Department of Labor (DOL) recently awarded $10.2 million in grants to 19 states as part of the Department’s Misclassification Initiative. The Misclassification Initiative was created in 2011, as part of a Memorandum of Understanding (MOU) signed between the DOL and IRS. The MOU formed an agreement between the two agencies to work together to reduce the incidence of worker misclassification, by sharing information and coordinating enforcement efforts.
A worker misclassification occurs when an
employer or business owner classifies a worker on their tax returns as
something other than an employee (such as an independent contractor),
when they should be classified as an employee. Generally, the
distinction between an employee and independent contractor is in how
much control the person paying for the service has over (1) what work
will be done and (2) how that work will be done. The more control the
person paying has over the work being done, the more likely it is that
the person providing the service should be classified as an employee.
From the worker’s perspective,
misclassification can mean denial from benefits and programs such as
family medical leave, overtime, minimum wage, and unemployment
insurance. From the government’s perspective, misclassification leads to
a substantial loss to the Treasury by way of lost Social Security,
Medicare, unemployment insurance, and worker’s compensation funds.
While the Misclassification Initiative was
started in 2011, this year is the first year that individual states
were eligible to receive grant funding for their efforts to decrease
worker misclassification. Although several states already had existing
programs designed to reduce misclassification, under the federal
Misclassification Initiative individual grants up to $500,000 were
awarded to 19 states under a competitive award process.
The Misclassification Initiative also
offers additional grant funding to states through its “High Performance
Bonus” program. This bonus program is based off the Federal
Supplemental Nutrition Assistance Program (SNAP), formerly called the
food stamp program, which also provides bonuses for high performing
states. So far, four states (Maryland, New Jersey, Texas, and Utah) have
received such bonuses. Of those states, Texas has received $775,529 in
bonuses, which is almost $300,000 more than the next highest recipient,
New Jersey. According to the DOL the bonuses are awarded to the states
that are most successful in detecting and prosecuting employers that
fail to pay taxes due to misclassification. The bonus program is
designed to give states both an extra incentive to carry out enforcement
actions and additional funds to upgrade their misclassification
enforcement programs.
If you’re unsure how your workers should be classified and would like assistance, please contact our office.
Government shutdown does not relieve tax responsibilities of individuals and businesses.
Some
individual and business taxpayers are wondering if they still need to
meet their tax obligations, even though the federal government is shut
down. The easy answer is absolutely. The IRS has had to dramatically
reduce its workforce during the shutdown, but the extension date of
October 15, 2013 remains for individual return filers of Form 1040 who
timely filed for an extension to file their returns. Additionally,
employment tax returns due October 31, 2013 for 3rd Quarter remain due
on that date. Businesses that are required to deposit their employment
taxes remain obligated to deposit timely. So, for example, the next
monthly deposit due date for Form 941 is October 15, 2013. That date
will be the due date, regardless of whether or not the federal
government is open or closed.
Failure to meet proper filing and
payment deadlines could result in significant penalties. It is unclear
if the IRS would waive penalties based on reasonable cause. It is
presumed that the argument for failure to file or pay while the
government is shut down would be that the taxpayer assumed there would
be no federal employees to accept the return or payment. IRS automated
phone lines and the official IRS website make it very clear that the
taxpayer is required to continue filing and paying taxes during the
government shutdown. It is believed that there would be limited relief
for late filers and payers based on this argument. First time penalty
abatement requests may very well be honored, however.
Taxpayers
should note that penalties associated with non-payment and non-filing
can be significant. An individual or corporate taxpayer that fails to
properly deposit will be assessed with a failure to deposit penalty that
could be as high as 10% of the amount of underpayment. Additionally,
late payment penalties could apply that equal ½% of the unpaid tax for
each month, or part of a month, that the taxpayer doesn’t pay a
balance. This penalty maxes out at 25%.
Failure
to timely file penalties are some of the fastest accruing penalties the
IRS assesses. The IRS will assess a penalty equal to 5% of the unpaid
tax for each month or part of a month that you file late. This penalty
will accrue monthly until is maxes at 25%. This can happen quickly – in
only five months. If a taxpayer is on extension for his or her 1040
and has a due date of October 15, 2013, but assumes it is not necessary
to timely file because the government is not open, then the taxpayer
would be assessed a 5% penalty, at a minimum, even if they file their
return on October 16, 2013 – assuming the government re-opened on that
day.
Heed the advise on the IRS website: “Individuals and
businesses should keep filing their tax returns and making deposits with
the IRS, as they are required to do so by law” during the current lapse in appropriations which has resulted in the current federal government shutdown.
If you have any questions regarding these issues, please don’t hesitate to contact our office.
Caraker Law Firm, P.C. 