Compilation of Recent Tax Court
Cases
December 31, 2011
Our Tax system is based upon three separate and distinct
levels of government. It will be helpful for you to
understand the hierarchy.
First, Tax law is debated
and written within the legislative branch. Specifically
within the House Ways and Means Committee , and the Senate
Finance Committee. Often times the nature of the tax law
being discussed is directed by the Executive Branch (i.e.
the President), but not always. Sometimes tax law is
initiated by the president (i.e. Obama’s new stimulus
package and bail out plans) and sometimes not, sometimes its
initiated by the political party in control of each house of
Congress.
Second, once tax bills are passed into law
they are administered by the Internal Revenue Service. The
IRS has the responsibility of actually writing the Code
Sections, and issuing further regulations and
interpretations on their meaning, and of course enforcing
the code section where applicable, through audits and
collection actions.
Finally, when there is a
disagreement between a taxpayer and the Internal Revenue
service over the enforcement of a particular code section or
collection action, the taxpayer bill of rights allows the
taxpayer to seek to have his case heard before the tax or
district court. If the taxpayer owes the IRS money as a
result of the pending case, then it must go to Tax Court. If
the taxpayer chooses to pay the assessed tax so that he does
not owe it any longer, he can then choose to sue the IRS in
District Court for a refund of the tax. That’s the
distinction between the two. Tax Court if you are contesting
an assessed and yet unpaid tax, District Court if you are
contesting an assessed and paid tax, hoping for a reversal
and subsequent refund. Both Courts routinely hear tax cases.
The rulings of both the Tax Court and the District
Court are the final authority when it comes to tax law and
are used extensively by the IRS in determining future
execution of their administration of the tax code. In other
words, if you are audited, and you can find a tax case that
supports your position, then game over, you won. That’s how
the system works, and that’s how important tax cases are.
Conversely, if you are audited and you find a tax court case
supporting the IRS position, you also should know that it’s
game over and you may want to cut your losses.
There have been surprisingly few tax
cases that are pertinent specifically to daytraders, and the
mark to market election. In this publication we have made a
compilation of three recent cases that may provide some
insight into the types of issues that come up in audits of
taxpayers specific to trading in securities and the mark to
market election. We also give reference to two additional
cases that you may want to reference if interested. We
provide a brief summary of each of the two additional cases
but do not provide as much analysis because of the nature of
the cases.
All of the cases we did outline
provide useful and relevant information and will provide you
with insight into the types of issues that get people into
trouble to begin with, how to avoid these type mistakes, and
what the IRS response will probably be in the event of an
audit.
We are making this available to you at a cost
of only $40.00. If you decide after reading the cases there
is something you’d like to discuss with us about your
specific situation and possible solutions, please visit our
telephone conference section and purchase a consultation. We
look forward to hearing from you.
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