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?
Bad things.
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.
