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Don’t Complain To IRS If They Are Slow To Process Your Fraudulent Refund Claim

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Don’t Complain To IRS If They Are Slow To Process Your Fraudulent Refund Claim

Judge Juan Vasquez in TCM 2022-55 gave us an opinion with elements of truly excellent fiction. This is an innocent spouse case. The innocent spouse aspect is quite interesting, but the flawed story is even more intriguing. Of course, everyone’s name is now on the public record, but in this case, my approach is not to make the taxpayer more famous. So we call this couple Joe and Mary. Also part of the story is Dick, one of their now grown children and Mary’s mom, whom we call mom.

a long story

In his coverage of the case, Jason Freeman noted that it was “an example of how the taxpayer’s entire life story is related to the determination of innocent spouse relief under section 6015(f) of the code. Controversial pattern of fact spanning 1972 to 2017”. It’s important to remember that what we have is the story Judge Vasquez ultimately accepts.

After graduating from Mary University with a degree in art education, Joe and Mary married in 1972. Joe is a Vietnam War veteran. In 2011, his primary care physician diagnosed him with PTSD. Sadly, this was not adopted in the seventies. It’s good to keep this in mind because Joe is pretty much the villain in this story.

In the 1980s, Joe started a roofing business with the help of Mary’s brother, who owned a business that made roofing materials. Joe was initially successful, but fell behind in paying his bills, which soured his relationship with his brother-in-law. Mary finds herself in an argument and confronts Joe about the situation. His response was to throw a precious heirloom vase at her. The vase misses Mary, but it shatters itself.

Mary realizes she can’t ask Joe about her finances without risking a violent reaction, but divorce is not an option due to her religious beliefs. After moving to Florida and two other failed businesses, Joe left Mary. She brought him back in 1992, though after he agreed to Christian counseling.

not walton

Mary thinks a two-parent home is better for the kids, but when you consider Dick’s testimony, you have to wonder:

“You didn’t poke the bear. You learned how to avoid that.” When family members don’t follow the strategy, “bad things happen.” On several occasions, —— was physically abused at the hands of his father.

In 1997, Joe started spending a lot of time on his home computer. He claimed that he had started a “currency brokerage business”. Mary understands that he is matching investors with medical professionals looking to sell or consolidate their businesses. Joe refused to answer any questions about the business and would lose his temper if pressed, including kicking household items and throwing tools at the wall.

Mom moved in with them in 1999 and it made them feel cramped, so they pooled their resources and bought a bigger house.

The real business of money brokerage

Joe strictly controls his accounts and joint accounts, and takes steps to ensure no one else sees incoming mail. He also maintains control of the joint filing. Mary’s sole purpose of participating in the joint tax filing is to provide Joe with her W-2 and other tax-related information. As it turns out, Joe was supporting the family by preparing a return, and he overstated tax withholding — dramatically.

In that decision, there were eight refund checks from 1997 to 2005, totaling more than $1 million. It’s actually ridiculous that someone could even get away with it once, but it’s a weakness in the IRS system that has been exploited by others. The fact that withholding does not match before a refund is issued is the basis of OID fraud, which has been around for a while.

The most ridiculous is how the IRS finally caught Joe. Joe filed his 2009 return, asking for a refund of $108,253. The refund wasn’t fast enough, so Joe contacted the customer service office. They connected him to the Taxpayer Advocacy Service, which opened a case to investigate the status of the tax refund. This caught the attention of the 2006, 2007 and 2008 exams. In the short term, the exam reversed the inflated withholding tax and issued an assessment.

criminal investigation

One day in October 2010, when Joe lost control of the mail, Mary learned of the debt from the IRS. When she pressed Jo on why the debt was so high, he slammed her against the wall. After he went to bed that night, she hid his gun for fear he would use it.

They hired taxpayer resolution services to represent them. TRS filed a request for collection of due process hearings in response to levy notices on 2008 deficiencies. Then the IRS criminal investigation stepped in. The CI agent spoke to Joe and Mary separately, showing Mary a copy of the returns and refunds she checked. She admitted to signing three refund cheques but denied signing most of the returns.

CI decides not to follow Mary, but continues to follow Joe. The case went to a grand jury, but US prosecutors refused to indict in October 2015, notifying CI.

innocent spouse

The opinion is about Mary’s right to be released from joint and several liability under Section 6015(f). There are seven threshold requirements to meet. Mary and the IRS argued over three of them. Are there transfers of assets between spouses as part of a fraudulent scheme? Did Mary knowingly participate in a fraudulent filing? Is the tax liability attributable to one of Joe’s projects?

Overall, Judge Vasquez found Mary to be credible. While Joe’s story about the large refund check being tied to his mysterious money-brokering business is unbelievable, Joe’s intimidation prevents Mary from investigating things more closely. The testimony of son Dick confirmed this.

A tricky question is to whom the fictitious withholding taxes should be attributed, since they are not real. Judge Vasquez assigned them to Joe because they were his invention.

After passing the threshold requirement, Mary satisfies the requirement for simplified relief. She and Joe are no longer married, although he still rents a room in her house. If she were to take responsibility, she would face financial hardship. And she didn’t know the plan. Abuse in the relationship supports the lack of knowledge.

other insurance

Emlyn Cameron received a grant from the Florida Tax Court under Law 360. Women are exempt from joint tax debt.

Lew Taishoff has Leo Tolstoy, you should live in this time. As you and I both know, Mr. Taishoff is referring to the opening of “Anna Karenina”—happy families are all the same; every unhappy family has its own misfortunes—but you have to consider other readers. Mr. Taishoff noted key points about the case for tax court practitioners:

Whatever you produce in a trial like this is produced at CDP. CDP is the new trial. If the SO or AO refuses to give your evidence, pay particular attention to your offer and its refusal, and include your statement of objection in the management record; in tax court, ask for the management record to be relocated to put the SO or AO excluded content. If this happens to be testimony, well, let’s take it now.

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