Wednesday, February 19, 2003
Okay, there is a lot of different stuff going on here in the case of Florence C. Blankson. I�ll take them one by one.
(1) Tax Court agreed IRS issued Notice of Deficiency within the period of the statute of limitations after Blankson agreed to an extension of the period within the period.
(2) Tax Court agreed with IRS as to the disallowance of most schedule A employee and schedule C self-employment expenses. However, for two years, Tax Court disregard the parties� stipulation that there was no self-employment income because that contradicted the reported income and facts at trial. This lead to Tax Court allowing small amounts of self-employment expenses that Blankson had essentially conceded.
(3) Tax Court disallowed charitable contribution deductions in excess of amounts allowed by the IRS because Blankson did not have proper documentation and admitted some of the claimed contributions were to individuals.
(4) Blankson claimed a $4,500 casualty theft loss on her taxes without substantiation, then presented to Tax Court a list of the items stolen totaling $1,709.03, again without substantiation. Pursuant to Cohan v. Commissioner, Tax Court allowed a $750 loss. Someday I will have to read this case to find out why this number was picked out of thin air. Tax Court was persuaded that the stolen items were all intended for use in her trade or business, so the limitations for personal casualty losses did not apply.
(5) Tax Court disallowed a dependency exemption for Blankson�s sister because there was no evidence the sister was here legally and the testimony at trial established that the sister was only here while attending trade school, making her a �student� and therefor exempt from the substantial presence test.
(6) IRS denied Blankson claimed child care expense credit, due to lack of substantiation. Blankson provided identifying information regarding the service provider, but claimed to have paid cash and had no receipts. She claimed a $480 dollar credit based on $2,600 in expenses, calculated from a cost of $75 per week. Tax Court stated that Blankson�s credible testimony was adequate substantiation of the expenses, and held on the record that Blankson paid child care expense of $1,000 in the taxable year without explaining where they got that number.
(7) Tax Court upheld IRS�s determination of accuracy related penalties for the years at issue. Blankson claimed she acted in good faith by relying on her tax preparer. Tax Court said that�s not good enough, you must make a reasonable effort to determine the law and comply with it, and she provided no evidence reviewing the return for this purpose. Perhaps tax preparation software could be rewritten to spit out letters with explanations of the law on every semi-questionable position taken, and blanks beside each paragraph where the taxpayers can initial that they have reviewed it. Potentially, these could then serve the same purpose of avoiding penalties as the �opinion letters� the rich buy from CPAs and tax attorneys.