Some More Randomness

Here are a few developments that don't seem to merit a full treatement and are starting to get a little stale.

Richard H. Franke v. Commissioner, TC Memo 2011-10

I really thought I could make something of this.  It was about whether somebody who had fallen for a tax protester type package was liable for fraud penalties.  He was only arguing about money.  The people who created the package are doing time. The scheme was based on creating a "Corporation Sole", which is a legal form used generally by religious groups to associate title to property with whoever holds a particular office.

What was really interesting was that Mr. Franke was an enrolled agent and he was using the scheme to shelter his tax preparation income.  He was continuing to insist to the Tax Court that he believed the scheme worked as they found him liable for the penalty.  I generally think that enrolled agents don't get enough respect so I was kind of disappointed.

TRC, INC. v. U.S., Cite as 107 AFTR 2d 2011-XXXX

The company was trying for a refund of penalties for failure to timely pay over payroll withholdings.  They were not successful.  The decision emphasized that withholings are special in that the money was never yours in the first place :

In determining if the taxpayer exercised ordinary business care and prudence in providing for the payment of his tax liability, consideration will be given to the nature of the tax which the taxpayer has failed to pay. Thus, for example, facts and circumstances which, because of the taxpayer's efforts to conserve assets in marketable form, may constitute reasonable cause for nonpayment of income taxes may not constitute reasonable cause for failure to pay over taxes described in section 7501 that are collected or withheld from any other person.


Although it is the duty of the court to weigh all of the factors identified in the regulations, “it will be the rare case where the government is made “the unwilling partner in a floundering business” without the employer incurring the duty to pay a penalty for having made such a choice” to fail to pay trust fund taxes over to the government on a timely basis.

The best thing for small businesses is to use a service like Paychex.  If you don't have the money to pay over the withholdings, it really means that you don't have the money to make payroll.

Private Letter Ruling 201101028, 01/07/2011

This was a withdrawal of exempt status,  The organization was supposed to be raising funds for charities.  It's only activity was gambling, apparently Bingo, and contributions from other organizations controlled by the same person.  It may be that they applied for exempt status in the first place in order to be able to get licensed for the gambling.  It seems like many organizations apply for exempt status more to get some sort of state law privilege or creditability with actual exempt organizations or local and state governments.  The IRS probably has enough to do collecting federal revenue without being used as vehicle for liquor licenses and gambling permits.  But as I often say "It is what it is.  Deal with it."

Private Letter Ruling 201101027, 01/07/2011

This one is another revocation of exempt status, this time for "inurement".  It was pretty convoluted.  I'll just give you a taste of what ORG (The not really not for profit) was up to:

Given the facts, it appears that CO-2, DIR-6 as president, purchased the land in January 19XX from LAND order to build a golf course; which was also on or around the time the land was discovered to contain toxins, which would have certainly devalued the land at that point in time Not able to build a golf course due the toxins, CO-2 then only held the land for an 8-month period who would then sell the land to CO-1 who would also only hold it for an 8-month period before selling it to ORG at a value that may or may not have been the fair market value given the discovery of the toxins in the land. Without contemporaneous certified appraisals the value of the land during each sale remains unknown. To state that no appraisals were ever conducted for any of these transactions is unlikely since most land and property sales are accompanied by a certified appraisal.


ORG has not demonstrated that the transaction with DIR-6 was in fact at arms-length. Without a certified appraisal at the time the land was sold to ORG and in light of value of land recorded by the county, the facts indicate that ORG purchased land that was grossly overvalued. This transaction allowed the FAMILY to divest ORG of several hundred thousand dollars as illustrated below:

Few things trouble me more than people using exempt organizations to enrich themselves.

Valarie N. Stephenson v. Commissioner, TC Memo 2011-16

This was an innocent spouse case.  It is one where the taxpayer won for a change.  That she had to go to Tax Court is indicative of how hard it is for people to win these cases.  There are 8 factors that are considered, one of which is abuse by non-requesting spouse.  Here is what she had on that one:

Mr. Stephenson abused petitioner throughout their marriage. During trial petitioner provided specific examples of abuse, including a time when Mr. Stephenson threatened to kill her or himself if she left him and times when Mr. Stephenson threw items at her. Mr. Stephenson regularly humiliated petitioner in front of his family and their friends and demeaned her when she asked questions. Mr. Thomas corroborated some of petitioner's testimony by credibly testifying that petitioner had bruises on her body and told him that she was in an abusive relationship.


I know it is more a matter of principle, but the denial of joint filing to same sex couples is probably not quite the hardship they think it is.  Joint and several liability is the dark side of joint return filing that most planners, even divorce attorneys, who should know better, ignore.

Unless something really huge happens, there will be quite a few posts like this in the next couple of weeks as I have a pretty big backlog and not much time to give things the full treatment.