Xianfeng Zhang v. Commissioner, TC Summary Opinion 2011-21
This was a substantiation case. They mentioned the famous Broadway producer, but only to say that his rule didn't apply. Taxpayer won on home office, but all his travel expenses were disallowed:
Petitioner testified that he took three separate trips to China for business purposes in 2006—one in June lasting approximately 90 days, another in September lasting approximately 60 days, and a third that began in December 2006 and ended sometime in 2007. Petitioner entered into evidence three airplane tickets for flights from both Beijing to Los Angeles and Los Angeles to Beijing. The dates on the airplane tickets are not consistent with the dates or periods of travel to which petitioner testified. Although petitioner's passport bears customs stamps from both the United States and China, some of the stamps are illegible. The stamps that are legible do not correspond with the dates petitioner testified he was in China for business.
Petitioner did produce several receipts that appear to be for automobile and lodging expenses in China. The receipts, however, are in Chinese and do little to explain petitioner's business activities. The receipts do not satisfy the strict substantiation requirement of section 274(d). Petitioner has failed to substantiate the travel expenses he claimed for his trips to China. Therefore, we sustain respondent's disallowance of petitioner's deduction for travel expenses.
ESTATE OF ANTONIO J. PALUMBO v. U.S., Cite as 107 AFTR 2d 2011-1274
This one looked kind of interesting, not least in part because the dollars are pretty big - over eleven million. Mr. Palumbo had a will that left the residue of his estate to a charitable trust. Then his attorney redid his will and there was a "scrivener's error" - poor Bartleby gets blamed for everything. The new will didn't have a residuary clause. Managing to die intestate with a valid will is quite a feat, but that's what his son contended. Finally there was a settlement between the son and the charitable trust. Then the IRS gets into the act and says the settlement doesn't qualify for the estate tax charitable deduction. The taxpayer won, although the court ruled in late April that the government's postion had enough justification that the Estate could not get attorney's fees.
SMITH v. U.S., Cite as 107 AFTR 2d 2011-1228
Mr. Smith, on the other hand, did get attorney's fees of $78,167.02. The IRS put him though a lot in resisting his refund claims including claiming that he hadn't filed them and then admitting that they did. They contested both his net worth (if over $2,000,000 you don't get fees) and that their postion had been justified at some point or other even though they ended up caving.
Desmond D. Conyers v. Commissioner, TC Summary Opinion 2011-25
This was an innocent spouse case where the spouse claiming relief was the husband and the wife was deceased. The only income on the joint return had been from his roofing business which he pretty much controlled. His story was:
At trial petitioner testified that sometime after respondent's examination he became aware of large sums of cash withdrawn from two of his bank accounts and that he now believes that his wife had been taking money and fixing the books to support a drug and alcohol addiction. He also testified that payment of the tax in issue would cause him such hardship that his only option would be to file for bankruptcy.
The Court wasn't buying it:
Other than this brief and conclusory testimony, petitioner produced no evidence to support these allegations. In the light of the facts indicating that petitioner knew about the operations of his business and its substantial income, we cannot find that petitioner has proven that he is eligible for relief under section 6015(f).
Abdul M. Bangura v. Commissioner, TC Summary Opinion 2011-23
This seems like a pretty run of the mill clueless taxpayer substantiation case.
In connection with the audit of his 2004, 2005, and 2006 tax returns, petitioner told the examining agent that he was not required to provide the Internal Revenue Service with any records or documentation other than those which had been submitted with his income tax returns. Indeed, petitioner never provided the examining agent with documents of any kind with respect to years 2004, 2005, and 2006 during the audit for those years. Nor did petitioner respond to the IDR for 2007.
The agent really piled it on assuming that there must have been gross receipts to pay the unsubstantiated expenses.
Although the examining agent used the business expenses set forth on Schedule C in reconstructing petitioner's income, he determined that deductions for these expenses should be disallowed for lack of substantiation. The examining agent also determined that for 2007 petitioner was liable for an addition to tax pursuant to section 6651(a)(1) for failure to file a timely return and an accuracy-related penalty pursuant to section 6662(a).
The Court at least gave the taxpayer a break on that.
Consequently, we hold that the examining agent may not use petitioner's disallowed Schedule C expenses to reconstruct his income. Because of this error, respondent must recalculate petitioner's 2007 unreported income.
When it came to the penalties, though, the Court did not find his argument about being somebody just starting in business and learning through honest mistakes at all compelling.
Yet when asked by the examining agent to provide documentation to substantiate his claimed business expenses, he failed to do so. Petitioner asserted that this was not negligence; rather, “it's more or less when you're starting out doing something, like a medical doctor doing operations or maybe a lawyer representing somebody in the courtroom, you have a lot to learn. You do make mistakes here and there.” We find petitioner's cavalier attitude unacceptable.
Here is the punch line. The taxpayer was a CPA. I can hear the Wandering Tax Pro laughing out loud in New Jersey right now, even if he is "down the shore".