We have a case coming up in the Tax Court.
Frankly it should never have gone this far. Much of it was COVID, I suspect. However, some of it was the IRS dropping the ball.
What set this off was someone dying. His employer had a life insurance policy on him. I suspect that this came as a surprise to his employer, who probably thought all along that the employee owned the policy with the employer paying the premiums. This would be a “split dollar” arrangement. The taxation of split dollar plans became trickier in the mid aughts, but these arrangements have been around for a long time.
The employee died. The company received the proceeds. The company intended for the widow to receive the proceeds. How did the company get the proceeds to the widow?
They botched is what they did.
They tried to correct the botch by amending a Form 1099.
Our client is the widow, and she is being chased by the IRS. I reviewed the history of the transaction, the original and amended 1099, e-mails galore.
I have been trying to contact the IRS on the case. I even reached out to the clerk for Judge Morrison (at the Tax Court) for an assist. She was extremely helpful, but getting a response – or a pulse – from the IRS has been frustrating.
Until this week.
It is amazing how quickly some issues can be resolved if people can just talk.
The IRS understood our argument. They were willing to compromise, except for one thing.
The company never filed the amended 1099 with the IRS.
Explains why the IRS was digging in its heels.
Mind you, we can correct this – now that we know. We could also have corrected this long ago and not involved the Tax Court.
We will never appear before the Court.
Procedure here is important. Both the IRS and we will tell the Court the matter has been settled. The Court will be happy to move on.
By contrast, what happens if we unilaterally pull out of Tax Court?
The seminal case goes back to 1974.
The IRS came after William Ming. Whatever was going on, the IRS was going after the fraud penalty.
There was back and forth. Mr Ming died. The IRS eventually showed some leeway on the fraud issue.
That caught the estate’s attention.
The estate tried to withdraw its case. They may have wanted a jury, and the Tax Court does not have a jury.
Here is the Court:
It is now settled principle that a taxpayer may not unliterally oust the Tax Court from jurisdiction which, once invoked, remains unimpaired until it decides the controversy.”
There is a Hotel California vibe here: the Tax Court will hold against you should you withdraw. This triggers the legal doctrine of res judicata, and you then cannot relitigate the issue in another court.
You can leave by winning, losing or settling. What you cannot do is walk out.
Our case this time for the at-home tax historians was Estate of Ming 62 T.C. 519.