Over the past year I dealt with a case that was somewhat difficult and unique, both because of the tax issues involved, as well as the personal issues that the members were going through.
The members were under audit for two separate years, and the case was initially assigned to one of our outside representatives in Texas. After the examination there were several adjustments, but the two largest ones were:
- Almost $200,000 adjustment for underreporting income.
- Disallowing more than $100,000 for a theft loss deduction the members claimed on their tax return.
A Notice of Deficiency was issued, with adjustments totaling nearly $150,000. This was the amount the I.R.S. was asking them to pay.
When I first spoke with the member, he was very concerned, and even asked me if he was looking at potential jail time. I tried to calm him down and asked him to give me an explanation of the two main issues on the Notice of Deficiency. He gave me the following explanation:
- For the underreported income, he had received “loan payments” from a very wealthy friend. All these funds were used in the course of the business. The problem the IRS examiner had was that there were no loan repayments occurring. The examiner believed that these funds had been received as payment for some type of goods or services.
- For the theft loss deduction, the member said he’d had gold bullion coins in excess of $100,000 that had been stolen. He did submit police reports, and had tried to establish the value of the coins from a guidebook of U.S. coins. But the examiner did not accept the taxpayer’s valuation because there were too many discrepancies in the description of the actual coins he claimed to have had.
We decided to file a petition with the Tax Court to dispute the claims, however, shortly after filing the petition, the member called me with some horrible news − he had been diagnosed with brain cancer. The doctors told him his prognosis was not good. I told him to focus on taking care of his health, and we would do our best to take care of the IRS issue for him.
After this call my interaction with the member was limited. I left him messages with status updates as needed, but I did not hear back from him. A few months later his wife called to let me know that he had passed away. She was somewhat distraught, obviously because of her husband’s passing, but also because she did not know how she could possibly pay the amount of money the IRS claimed she owed.
Fortunately, their case was assigned to a very sympathetic I.R.S. Appeals Officer. She looked at all the facts of the case and considered all the issues and arguments we had made on the issues. She removed the adjustment for the unreported income entirely, and allowed almost half of the theft loss deduction the members had claimed. This brought the final agreed upon settlement amount to less than $23,000 of tax due. The member’s wife was very happy and relieved. While the member was not able to share in this good news about the outcome, I hope he knows that we did everything in our power to help him and his family in this difficult situation.