Join the Taxpayer Advocate Service in a Tax Problem Solving Day at the University of Baltimore School of Law on Friday April 7, 2023. UB law students Eleni Hadjipanteli and Eric Ampil, pictured with volunteer Daniel Guy, recently participated in another problem solving day at the Helping Up Mission in Baltimore.
More information is available here.
Eric Ampil, a Rule 19 Student Attorney in UBalt’s Low-Income Taxpayer Clinic shares his recent Tax Court experience below:
As a student attorney in the University of Baltimore’s Low-Income Taxpayer Clinic (LITC), I had the opportunity to attend U.S. Tax Court on February 15, 2023, where I watched a case involving the IRS’ imposition of a civil tax fraud penalty on an individual taxpayer. The unique part about this case was that the individual who the penalty was imposed upon was petitioning the penalty without the benefit of counsel.
The petitioner was a sole proprietor of a Small Business Corporation (S-Corp), conducting business in the form of tax preparation and the shipment of vehicles overseas. The civil tax fraud penalty levied against the petitioner stemmed from the unsubstantiated expenses he was claiming on his tax return, including unpaid employee expenses, and also expenses he was claiming in connection with running his business. Among these unpaid employee expenses were unreimbursed travel mile expenses and phone expenses. In terms of deductions taken as the sole proprietor of the S-Corp, the petitioner claimed travel and entertainment expenses, fuel costs for shipping, rent, employee salaries, and bad debts. Initiated at first by an examination of the petitioner’s 2016 individual tax return, the IRS then looked backwards and forwards to tax years 2015 and 2017 and identified that the petitioner claimed the same tax expense deductions as in 2016. Using testimony by the IRS revenue agent assigned to this matter, the IRS looked to prove that the expense deductions taken by the taxpayer were invalid, and that the lack of documentation presented by the taxpayer proved that this was not a simple mistake but was rather purposeful and met the level of fraud.
The pro se petitioner was largely ineffective in protesting this penalty, and the lack of documentation to support these claimed deductions could prove to be dispositive, as the petitioner awaits a decision from U.S. Tax Court Judge Alina Marshall. According to IRC 6663, the civil tax fraud penalty asserted on this petitioner must be proven by “clear and convincing” evidence of underpayment of tax due to fraud. Such evidence must show the taxpayer’s intent to evade the assessment of tax, which the taxpayer believed to be owing. In some cases, the civil fraud penalty can add to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
My experience at Tax Court illustrated the importance of having capable legal representation, even in an area of law that students don’t traditionally associate with much litigation. The petitioner, although a “zealous” advocate for himself, missed procedural steps and presented a disorganized argument. Additionally, although the proceeding was adversarial in the sense that the IRS was trying to impose a penalty on the taxpayer, I had the sense that the foundational objective of the proceeding was to resolve the issue in the fairest way possible—to determine what the taxpayer owed at the end of the day, not for one side to win over the other.
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