Soc. Sec. Disability Taxation Timing 

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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

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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. 

Federal Rule of Civil Procedure 11(b) 

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Don’t use AI for your citations in a brief to the Court! Clinco v. Comm’r filed February 9, 2026 by the U.S. Tax Court at T.C. Memo 2026-16 is a reflection of a growing problem in judicial filings, by both by represented and unrepresented parties.  This is a pretty basic case about an IRS exam where the IRS used bank deposit analysis to propose adjustments to the taxpayer’s gross income.  The IRS also pulled and compared 1099-K information. Ultimately a Notice of Deficiency was issued and the taxpayer hired counsel to represent him in Tax Court.  Unfortunately, counsel made some poor choices in his representations to the Court.  Taxpayer’s support for his positions were based on mostly fabricated cases! It turns out that 3 of the 4 cases his lawyer cited to the Court did not exist and as the Court states, “appear to be hallucinations generated by a large language model AI.” Based on this, “[t]he persuasiveness of Clinco’s argument collapses like an overmixed souffle.” In this case, the Court looked past all of these issues to get to the substance of the matter which still didn’t favor the taxpayer. This may not always be the case. The Court provided warning however: “Submitting a brief with fictitious caselaw is a recipe for sanctions and a clear violation of Rule 11(b) of the Federal Rules of Civil Procedure. We reiterate Chief Justice Roberts’s advice to lawyers who write briefs with citations of nonexistent cases: ‘[a]lways a bad idea.’” Rule 11(b) requires a lawyer or unrepresented party to certify to the Court that their submission is warranted by existing law or nonfrivolous argument for extending or modifying existing law.  Rule 11 also includes sanctions, which can take nonmonetary directives, monetary sanctions, or orders to pay other parties reasonable attorney fees and costs.  In sum, a bad idea all around. 

Post Bankruptcy Collection Action

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11 U.S.C. 522(c)(2)(B)


The United States Tax Court in Mongogna v. Comm’r of Internal Revenue, Docket No. 18651-23L, filed August 18, 2025, sustained a levy decision from a Collection Due Process hearing after it determined that a Settlement Officer had not abused her discretion. This case presents a good explanation of the effect of a bankruptcy discharge on a pre-petition tax lien filing. Taxpayers are a married couple that owed income taxes for many years. They filed a chapter 7 bankruptcy after the filing of a Notice of Federal Tax lien affecting several tax periods.  They owed total taxes of $288,476 at the time of filing their bankruptcy. A discharge was ultimately issued. Post-bankruptcy, the IRS sent the taxpayers a notice of intent to levy with a right for an Appeal, which the taxpayers took advantage of. The taxpayers were advised that in order to proceed with the Appeals hearing, they would have to provide financials and disclose if they had any exempt or abandoned property from the bankruptcy. Their lawyer argued that it was not their duty to provide this information to the IRS. He further argued that because much of the debt was discharged, it was not necessary to provide financials as they wanted a streamlined payment agreement. That is available when a taxpayer owes less than $50,000. The Appeals officer disagreed and indicated that it was necessary to address the exempt and abandoned property so that the IRS insolvency unit could determine what was discharged and whether or not the pre-petition lien filing attached to the exempt and abandoned assets. The Court agreed with the Appeals Officer that failure to disclose this information prohibited a collection alternative, such as an installment agreement, from being established. It is worth repeating the rule relating to the effect of the lien in this matter. A chapter 7 bankruptcy may discharge a person from personal liability for the federal taxes owed in some cases, however, it does not extinguish a pre-bankruptcy petition federal tax lien. See 11 U.S.C. 522(c)(2)(B). Therefore, collections can be enforced against taxpayers exempt or abandoned property, post-bankruptcy.

Innocent Spouse Relief

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IRC 6015 (c) 


The United States Tax Court in Smith (Petitioner) and Hodge (Intervenor) v. Comm’r of Internal Revenue Service, Docket No. 372-23S, filed June 12, 2025, agreed with the Petitioner and the IRS in a rare case of review associated with a non-requesting spouse’s objection to provision of Innocent Spouse relief. The relevant tax period is 2017. However, the return was filed in July 2021. The return was prepared by Petitioner, wife. The couple legally separated in October 2021. Petitioner had W-2 income. Intervenor husband had W-2 income, 1099 income and cancelled debt income. Neither of the last two items were included on the return, so the IRS later issued a notice adjusting the liability. It was after this that Petitioner filed for Innocent Spouse relief under IRC 6015(c). Under this type of relief, the requesting party can have the liability limited to their income only. This particular provision states that relief is not available if the requesting spouse “had actual knowledge, at the time such individual signed the return, of any item giving rise to a deficiency (or portion thereof) which is not allocable to such individual…” In this case, the IRS agreed that requesting spouse should receive relief. However, the Intervenor (husband), submitted a response indicating that Petitioner must have been aware of the unreported income because she prepared the return and had access to his bank account, so she could not have been “completely oblivious,” as he stated it. The Court deemed his testimony to be self-serving and unverified. During the relevant period, the parties lived apart. The 1099 for self-employment and cancelled debt were addressed to the husband, Intervenor. The 1099 income was deposited into his sole account. Furthermore, the Court pointed out that throughout their marriage they always maintained separate bank accounts. Relief was granted to Petitioner because of the inability to meet the burden of the statute. 

Civil Fraud Penalty

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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! 

Penalty Abatement: Reasonable Cause 

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IRC 6724


While the taxpayer failed to succeed on its reasonable cause arguments for abatement of penalties in Dealers Auto Auction of Southwest LLC v. Comm’r, at T.C. Memo 2025-38, filed April 28, 2025, the case provides some insight regarding IRS denials of abatements based on nondelegable duty arguments.  This practitioner has had many information return penalty cases over the past few years, so it is not surprising to see a case related to a penalty associated with filing an information return. In this case, the return at issue was a Form 8300 which is required to be filed to report cash payments received by a trade or business when the cash payment is over $10,000.  The taxpayer regularly sells automobiles through an auction house and regularly receive over $10,000 cash payments from buyers.  The case explains all of their processes and filings.  Unfortunately for the taxpayer, they had a bumpy filing history.  They seem well aware of the requirement to file, but for a variety of reasons, could not completely comply.  Of interest in this summary is the Court’s commentary on the IRS position that the duty to file an information return is a nondelegable duty and thus essentially no abatement of penalties can be had.  The Court found the IRS’s argument to be “unpersuasive.” The taxpayers in this case had some facts associated with reliance on software.  The IRS argued that even if the taxpayer relied on software, it would not qualify for reasonable cause because the duty to file information returns is not delegable.  While the taxpayer ultimately failed to obtain relief, the Court made an effort to illustrate that the IRS conclusion was incorrect.  The Court stated that software malfunctions can qualify as a failure beyond the filer’s control when it is shown the taxpayer used the software correctly.  Additionally, there is no preclusion in Treasury Regulation Section 301.6724-1(c)(1)(ii) to find that a software malfunction could be a failure beyond the filer’s control, and further, the Internal Revenue Manual provides at 20.1.7.12.1(24) that failures related to software and hardware can be failures beyond the filer’s control for purposes of a reasonable cause defense. It may take effort, but the point of this is that it is possible to overcome the U.S. Supreme ruling of United States v. Boyle, 469 U.S. 241(1985) that is the IRS go to for the premise that a taxpayer cannot be excused for timely filing by relying on an agent. 

Innocent Spouse Relief

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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. 

Passports & Tax Debt

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IRC 7345


Affecting a taxpayer’s passport is a powerful tool to force filing and payment compliance, in many instances.  The Tax Court in Pfirrman v. Comm’r, filed March 18, 2025 at T.C. Memo 2025-22 walks us through the analysis.  This particular taxpayer was attempting to inappropriately challenge his underlying liability. But the case details how a passport can be used to motivate taxpayers to comply with filing and paying requirements.  This practitioner has dealt with many clients who have a high level of interest in meeting the statutory goals of IRC 7345.  Under this Code provision, if the Commissioner certifies that a taxpayer has “seriously delinquent tax debt,” then that certification is transmitted to the Secretary of State for action with respect to denial, revocation, or limitation of the taxpayer’s passport. Generally, a seriously delinquent tax debt is a federal tax liability that has been assessed, exceeds $64,000 (2025 inflation adjusted), and is unpaid and legally enforceable.  It should be kept in mind that it is entirely possible to either avoid certification, or have a taxpayer decertified as seriously delinquent, even if they owe over this amount, if they move into a compliant filing and paying status. In other words, once on a valid installment agreement, partial payment installment agreement, or placed into Currently Not Collectible, a taxpayer will no longer be deemed seriously delinquent, no matter how much they owe.  Much of the remaining part of the opinion was an explanation by the Court of the limitations of their jurisdiction under the statute. The Court may reverse certification if it is erroneous, or determine whether the IRS has failed to reverse the certification.  Should the Court find such facts to exist, it is limited to ordering the Treasury Secretary to notify the Secretary of State of such determination.  The Court lacks any further power.  In sum, find a compliant outcome and the matter will automatically be decertified to the Department of State. 

Statute of Limitations on Refunds­

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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.”