Tax Court In Brief | Larochelle v. Commissioner | Unreported IRA Distribution And Reliance On Professional

• Published date: 19 July 2022
• Subject Matter: Tax, Income Tax, Tax Authorities
• Law Firm: Freeman Law
• Author: Freeman Law

The Tax Court in Brief - July 11th - July 15th, 2022

Freeman Law's "The Tax Court in Brief" covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation: The Week of July 11th, 2022, through July 15th, 2022

• Colbert v Commissioner T.C. Memo. 2022-74 | July 13, 2022 |Wells, J.| Dkt. No. 8395-16.
• Knight v. Comm'r, T.C. Memo. 2022-76| July 14, 2022?| Lauber, A. | Dkt. No 11719-20L
• Kelly v. Comm'r, No. 13353-21L, T.C Memo 2022-73 | July 13, 2022 | Lauber |
• TBL Licensing LLC f.k.a. The Timberland Company, and Subsidiaries (A Consolidated Group), v. Comm'r T.C. Memorandum 2022-71| July 12, 2022 | Halpern, J. | Dkt. Nos 21146-15.

Larochelle v. Commissioner, T.C. Summary Opinion 2022-12 | July 12, 2022 | Leyden | Dkt. 10416-20S

Short Summary: The IRS found a deficiency in the Petitioners' tax return and issued a notice of deficiency. Petitioners filed for a redetermination pursuant to IRC Section 6213(a). Ultimately, they conceded the deficiency and challenged only an accuracy-related penalty of approximately $10,000.00. To prepare their returns, Petitioners did nothing more than provide documents to their tax professional. Between their two residences, the Petitioners' lost a Form 1099-R for a $238,000 distribution from an IRA. This income went unreported and led to a CP2000 notice to which Petitioners did not respond. After receiving a notice of deficiency, Petitioners paid the deficiency in full an requested the abatement of an accuracy-related penalty. The IRS denied the request.

Key Issues:

• The sole issue was whether the abatement should be granted, depending on whether the Petitioners had reasonable cause or acted in good faith in connection with their substantial understatement of income.
• The petitioners asserted they relied on their tax representative to prepare the return. However, the Court found their reliance failed to meet the reasonable cause standard.

Primary Holdings:

• Petitioners did not have reasonable cause for their mistaken underreporting because they:
  • Did not actively participate in the return preparation process.
  • Did not give the tax return preparer adequate information to prepare an accurate return.
  • Did not include in the record any showing they reviewed the completed return.

• Further, the Petitioners did not act reasonably because Mr...