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Sunday, March 02, 2003


Claudia J. Miner did not file income tax returns or make estimated payments for 1996, 1997, or 1998. IRS filed for her and determined a deficiency for the years based primarily on 1099s from her broker. They also assessed penalties for failure to file and failure to pay estimated . Ms. Miner claimed that the IRS has the burden of proof, that the notices of deficiency were arbitrary because the IRS did not establish cost basis in the securities Ms. Miner sold, and made no arguments contesting the failure to file penalty. Tax Court said no, IRS does not have the burden of proof because Ms. Miner did not keep adequate records, that deficiencies based on 1099s are not arbitrary, and allowed the failure to file penalty. Not to be outdone as to tax stupidity, the IRS tried to disallow deductions for margin interest. Tax Court was forced to remind the IRS that margin interest is generally not personal interest but investment interest, and may be deducted to the extent of investment income.

The part of this case that made me smile: To substantiate the penalty for failure to pay estimated taxes, the IRS offered only the notice of deficiency and the lack of withholding on the 1099s. Tax Court said that the IRS has the burden to produce evidence, a lack of withholding by third parties is not evidence that the taxpayer not made payments, and �Calculations attached to a notice of deficiency are not evidence of the truth of the matters alleged therein.� Tax Court disallowed the penalty and Ms. Miner got away with it.

Imagine, the IRS may now have to have actual evidence before they impose penalties! Yeah!

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