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Tuesday, January 28, 2003


Kolotolu V. and Seini Liti were back at the Tax Court on remand from the 9th Circuit. They had been charged with fraud by the IRS for failing to report substantial amounts of income in several years, but Tax Court found that the underreporting was due to negligence, not intentional fraud. The Litis then moved for litigation costs and award of sanctions. Tax Court denied the motion. On appeal, the 9th circuit slammed Tax Court for not providing reasons for their decision that could allow them to rule on the appeal. Tax Court explained that the fact of the underreporting was well documented and provided reasonable evidence to believe that the Litis were intentionally attempting to defraud the IRS. Tax Court ruled against the IRS based on the lack of intent to defraud, which they determined from the credibility of testimony offered by both sides at trial. The IRS was wrong, but their position was substantially justified, so there was no bases for award of costs or sanctions. This case makes one wonder whether litigation costs can ever be awarded where intent is the issue, since, if the facts are consistent with the IRS�s position, the IRS can always assume whatever intent they wish.

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