Soc. Sec. Disability Taxation Timing 

Posted on by katemley

IRC 86


The United States Tax Court in Smith v. Comm’r at T.C. Memo 2026-25 filed March 19, 2026 ruled that the only income offset for repayment of Social Security Disability payments can occur in the year the repayments are made.  This case and its effects are unfortunate and likely unintended, but a statute is a statute.  Taxpayer was injured and applied for Social Security Disability in 2022.  In November of 2022, he was awarded disability and was paid a retroactive award for the March 2022 to November 2022 time period.  He then received monthly benefits from December 2022 through March 2023. In April 2023, SSA ceased making payments because they learned the taxpayer had been working since April 2022.  He actually held two part time jobs in 2022 – earning a total of $16,535.  Because he technically did not qualify for disability, he had to repay the benefits paid to him by SSA. He paid a lump sum of $31,116 on May 26, 2023 and monthly payments during 2023 and 2024. He did not report any Social Security benefits paid to him in 2022 on his 1040, though he received an SSA-1099. He was ultimately issued a Notice of Deficiency for $5,454.  He essentially argued to the Court that he re-paid all the money, so it was a wash. However, the statute states that the amount of Social Security received in the taxable year may be reduced by repayments made by the taxpayer “during the taxable year.” As such, he could not reduce his 2022 Social Security income by the amounts he paid back during 2023 and 2024. The Court expressed that they understood the taxpayer’s position, but they were bound by the statute. 

Passport Certifications and Exceptions

Posted on by katemley

IRC 7345


The U.S. Tax Court in Shaban v. Comm’r filed March 3, 2026 at T.C. Memo 2026-24 provides a good overview of what it means to be certified as a seriously delinquent taxpayer for passport purposes, and exceptions for that certification.  The taxpayer in this matter was nothing but a victim to his own brother’s embezzlement, which approximated $9 million.  Unfortunately, this included trust fund money for payroll taxes.  Since the taxpayer was the owner of the business, he was assessed with the Trust Fund Recovery Penalty, or TFRP. The taxpayer took advantage of the opportunity to protest the proposed TFRP penalty, but his representative failed to timely respond to requests for information and the assessment stuck.  Ultimately, he was certified by the Department of Treasury to the Department of State as seriously delinquent and his passport was affected.  The taxpayer’s goal was to attack the certification through the argument that he was a victim of ID Theft.  The Court reflected on their limited jurisdiction as defined by the relevant statute – IRC 7345. That statute only allows the Court to determine if the certification was erroneous, or if the IRS failed to reverse the certification when required to do so.  It is noteworthy to explore the exceptions to the definition of “seriously delinquent tax debt,” according to the statute.  Those exceptions are debt that is under the statutory amount ($66,000 for 2026), debt paid pursuant to an installment agreement, or an Offer in Compromise.  In addition, a taxpayer can be placed in Currently Not Collectible status. Or, a debt where collection is suspended because of a request for collection due process hearing, or request for innocent spouse relief. It is also feasible for an administrative claim of ID theft approved by the IRS, to remove the liability from qualifying as a seriously delinquent tax debt.  One would think given the taxpayer’s arguments that he was the victim of ID theft that he would have pursued the filing of Form 14039 Identity Theft Affidavit, for processing at the IRS.  He did not, and because of that, along with the inability to substantiate any other exception under the statute, the certification was deemed proper.  The take-away here is that establishment of a collection alternative, and other actions, can result in decertification for passport purposes, even if the debt is not paid in full. 

Personal Liability for Estate Tax

Posted on by katemley

IRC 6324


The United States District Court for the District of Kansas issued United States of America v. Karst at Case No. 24-cv-04090-TC on February 27, 2026 in which they deemed the recipient of estate property to be personally liable under IRC 6324 for unpaid estate taxes.  In this case, the decedent left an estate with a value of nearly $4 million in 2007.  This was a taxable estate and the Form 706 reported an estate tax due of $792,790.75. The estate was administered by the trustees, who were the decedent’s sons, as successor trustees of his trust.  They opted to pay the estate tax in installments. While they made a few payments, they stopped short and still owed more than the original amount at the time of enforcement action by the IRS. During the administration of the estate, the sons opted to fully distribute the estate to the beneficiaries – themselves, while not paying the estate tax due. The elements of liability under the statute were easily met in this instance as the tax debt was valid and outstanding, while the beneficiaries received distributions of estate property and the estate failed to pay the tax debt.  Couple items to note here…the statute provides that the personal liability under this provision is joint and several among all transferees.  Further, the more practical issue seen by this practitioner is related to potential personal liability under the Federal Lien Priority statute at 31 U.S.C. 3713 whereby an administrator of an estate has risk for personal liability while ignoring the tax liabilities of the decedent on distribution of the estate.  It is highly suggested that if one is a Personal Representative, Executor or successor Trustee on a decedent’s estate administration, that time is taken to fully explore current tax compliance by the decedent so there is no violation of this statute that could cause personal liability for the administrator of the estate. 

Federal Tax Lien and CDP rights

Posted on by katemley

IRC 6320 


Crawford v. Comm’r filed January 7, 2026 by the U.S. Tax Court at T.C. Memo 2026-3 illustrates the opportunity provided to seek Collection Due Process hearing rights after a Notice of Federal Tax Lien has been issued.  In this case, the taxpayer had been assessed a Trust Fund Recovery Penalty for non-payment of employment taxes. Ultimately, the IRS issued Letter 3172 Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320.  In this case, the taxpayer’s representative filed a Request for Collection Due Process hearing within the 30 day timeline provided in the Lien notice.  By preserving these rights, the taxpayer obtained the ability to review collection alternatives with IRS Appeals. These would include Currently Not Collectible, regular Installment Agreement, Partial Payment Installment Agreement, or an Offer In Compromise. Many times reviewing collection alternatives with IRS Appeals is more advantageous than with IRS collections.  Most commonly, taxpayers will receive CDP rights at the time a Final Notice of Intent to Levy is issued. Once 30 days passes from the issuance of the Final Notice of Intent to Levy, the taxpayer misses the opportunity to have a CDP hearing. However, it has been this practitioner’s experience that the IRS could issue the Notice of Federal Tax Lien Filing either before or after the Final Notice of Intent to Levy. Therefore, there could be another opportunity for a CDP hearing if the hearing opportunity has been missed because a Final Notice of Intent to Levy has been issued at some point in the past.  Or this opportunity could present itself before the taxpayer is issued a Final Notice of Intent to Levy. In the instant case, the taxpayer was attempting to use the CDP hearing to attack the validity of the Trust Fund Recovery Penalty assessment itself.  Fundamentally, a taxpayer must file an Appeal of the Letter 1153 proposed assessment of Trust Fund Recovery Penalty at the time of issuance of that proposal, rather than appealing the assessment after the fact in a CDP hearing.  Regardless, the IRS could entertain collection alternatives in this setting. 

Levy Challenge

Posted on by katemley

IRC 6330


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. 

Civil Fraud Penalty

Posted on by katemley

IRC 6663


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! 

Innocent Spouse Relief

Posted on by katemley

IRC 6015


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. 

Statute of Limitations on Refunds­

Posted on by katemley

Statute of Limitations on Refunds­—IRC 6511


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.” 

Innocent Spouse Relief: Relief while married

Posted on by katemley

Taxpayer obtains relief while still married

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

Posted on by katemley

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.