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'Superficial' take on Reg. Sec. 6662(d)(1)(A)(i)


TaxCPANY

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IRS agent wants to assess "substantial underpayment" penalty based on 2006-year Form line 44 ("tax") of client's return. Line 63 ("total tax") would avoid the penalty -- i.e., client's additional liability exceeds $5K.

Has anyone here avoided that penalty by specifying which line of the return is determinative?

16 court cases found by CCH Intelliconnect did not pin down the meaning of "tax required to be shown on the return," nor were any other sources produced. My search of this group's archives also found nothing; so I greatly would

appreciate any current help.

VTY, TaxCPANY

P.S. I called this "superficial" because it doesn't delve into the "more likely than not" controversy -- and the agent I'm dealing with is such an *** that he cites IRS Publications as "authority." Still, if I don't trump his obtuseness with real *authority,* it'd cost my client.

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>>CCH Intelliconnect did not pin down the meaning of "tax required to be shown on the return"<<

According to Section 1.1662-4(3), The "amount of the tax required to be shown on the return" for the taxable year has the same meaning as the "amount of income tax imposed" as defined in §1.6664-2(b ). That definition is "the amount of tax imposed on the taxpayer under subtitle A." Subtitle A is the part of Title 26 called "Income Tax" and covers pretty much everything on Form 1040.

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>>he cites IRS Publications as "authority."<<

Why shouldn't he? IRS Pubs ARE authority, albeit very weak. They don't count for much in Tax Court, but they are appropriate and amazingly useful in an examination. Basically auditors don't have a lot of training and don't feel comfortable away from Pub 17. That's why you should be very very familiar with it, and all the relevant pubs for your client's issues. They almost always mirror the actual regs, so if you are right (as I believe you are in this case) they can get the job done.

Few things besides tax protester arguments will turn an auditor against you faster than slinging Tax Court citations around the cubicle. Sometimes that works with an Appeals Officer but since 16 judges don't support your position you probably want to avoid going to Appeals. You'd better work out something that even an *** can understand. For example, you might TACTFULLY suggest that Pub 17 (page 21) says the 20% penalty is based on the amount of underpayment, which is a bottom line sort of thing way past Line 44. And that when it says "correct tax," it's using exactly the same term the Instructions to Form 1040 use for what you are responsible to pay, and it's likely that means the whole thing. But maybe you don't think IRS instructions are good enough either.

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>>it doesn't delve into the "more likely than not" controversy<<

I suppose this means the taxpayer's position was so ridiculous the agent felt he was doing you all a favor only assessing a penalty instead of making a fraud referral, which in turn leads you to the *** appellation. I don't know if that's really what went down, but just based on what you said and how you said it, I suppose it's more likely than not.

Well, I wonder how this turned out last week. It seems to me that "delve" is an odd vocabulary choice when contrasting IRS consumer publications with Tax Court rulings. It means to "dig up," as if there was something kept buried. Still, your most important word is "trump." That's a verb with almost no meaning other than its connotations. It's kind of a surprise attack from a different direction, taking the trick even when another suit is led. Maybe you can pull that stunt on an IRS bureaucrat, but I suppose more likely than not it's just Whistful Thinking.

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