A Tax Court case emphasizes the need to keep good records of all financial transactions and related correspondence – especially if there is a dispute involved.
The current issue of NATP’s TAXPRO MONTHLY discusses William Jon McCormick, et ux, v Commissioner TC Memo 2009-239.
The taxpayers in question had a loan account with Citi Financial Services and a credit card with Chase. They paid Citi $7,500 to settle a loan balance of $8,042.00 and Chase $1,000 to settle a credit card balance of $2,875. They received a Form 1099-C for $542 from Citi Financial and $1,875 from Chase. The McCormicks did not report the full $2,417 in 1099-C income on their 1040.
Prior to the pay-off settlements the McCormicks had challenged the Citi Financial balance, indicating that a $492 insurance refund to which they were entitled but not paid should be applied to the outstanding balance, and had also questioned the Chase balance, feeling the true balance due was only $1,000, which they paid.
It seems the couple did not use the “bankruptcy exclusion” to avoid paying tax on the Cancellation of Debt income.
The IRS assessed the taxpayers the tax, and penalty, based on the full 1099-C amounts, and the issue ended up in Tax Court (which sort of surprised me considering the relatively small amount of tax liability involved – unless this was not the only issue).
The article tells us –
“Referring to {Code Section} 6201(d), if the taxpayer asserts a reasonable dispute with respect to any item of income reported on the return and has fully cooperated, the Commissioner shall have the burden of producing reasonable and probative information concerning the deficiency.”
The taxpayers presented in evidence sufficient credible documentation for the Court to find that “a bona fide dispute existed regarding the $492 insurance refund on the CitiFinancial debt and the balance of the Chase amount over $1,000.” All the IRS had to show was the Form 1099-Cs.
The current issue of NATP’s TAXPRO MONTHLY discusses William Jon McCormick, et ux, v Commissioner TC Memo 2009-239.
The taxpayers in question had a loan account with Citi Financial Services and a credit card with Chase. They paid Citi $7,500 to settle a loan balance of $8,042.00 and Chase $1,000 to settle a credit card balance of $2,875. They received a Form 1099-C for $542 from Citi Financial and $1,875 from Chase. The McCormicks did not report the full $2,417 in 1099-C income on their 1040.
Prior to the pay-off settlements the McCormicks had challenged the Citi Financial balance, indicating that a $492 insurance refund to which they were entitled but not paid should be applied to the outstanding balance, and had also questioned the Chase balance, feeling the true balance due was only $1,000, which they paid.
It seems the couple did not use the “bankruptcy exclusion” to avoid paying tax on the Cancellation of Debt income.
The IRS assessed the taxpayers the tax, and penalty, based on the full 1099-C amounts, and the issue ended up in Tax Court (which sort of surprised me considering the relatively small amount of tax liability involved – unless this was not the only issue).
The article tells us –
“Referring to {Code Section} 6201(d), if the taxpayer asserts a reasonable dispute with respect to any item of income reported on the return and has fully cooperated, the Commissioner shall have the burden of producing reasonable and probative information concerning the deficiency.”
The taxpayers presented in evidence sufficient credible documentation for the Court to find that “a bona fide dispute existed regarding the $492 insurance refund on the CitiFinancial debt and the balance of the Chase amount over $1,000.” All the IRS had to show was the Form 1099-Cs.
.
The Court ruled that the McCormicks only had to report $50.00 in COD income from CitiFinancial ($8042 - $492 = $7,550 - $7,500 = $50) and none of the Chase COD income.
So when it comes to your financial life keep all those bills, records, and both ends of correspondence.
TTFN
So when it comes to your financial life keep all those bills, records, and both ends of correspondence.
TTFN
1 comment:
No question that good records are critical.
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