TAX Question:
The following questions raise hypothetical situations dealing with the 2005 income tax return of Mike and Sue Wilson. Unless the question otherwise requests, give the latest date on which the Internal Revenue Service may validly assess the tax and/or penalties of Mike and Sue. [In other words, as of what date will the action be untimely and barred by statute?]
a. The Wilson’s 2005 tax return Form 1040 was:
(i) Mailed to the IRS on March 7, 2006 and received March 10, 2006.
(ii) Mailed to the IRS on April 17, 2006, (using a private meter and Post Office box at Sue Wilson’s employer) and received by the IRS on April 21, 2006. It should be noted that April 15, 2006, was on a Saturday.
(iii) Never filed.
(iv) The Wilsons had inserted the words “Denial and Disclaimer attached as part of this form” below the jurat and above their signatures on the Form 1040, and attached a statement entitled “Denial and Disclaimer” in which taxpayers denied liability for income tax. Otherwise the return was complete and correct and the tax shown was paid when the return was filed on April 15, 2006.
b. The return was filed on April 15, 2006.
(i) A Form 872 was executed on April 15, 2009 extending the statute of limitations to December 31, 2009.
(a) Same as (i), except the Form 872 was executed on April 16, 2009.
(ii) A Form 872-A was executed on March 31, 2009. Mike and Sue sent the Internal Revenue Service a notice of termination of the agreement on October 25, 2009, which was received October 27, 2009.
(iii) The IRS mailed a notice of deficiency in tax of $5,000 on April 15, 2009.
(a) The Wilsons petition the Tax Court July 18, 2009.
(b) The Wilsons petition the Tax Court June 22, 2009, an opinion is handed down April 1, 2010, and a decision of the [159/160]court is entered on May 12, 2010. (c) The Wilsons receive a notice of deficiency dated April 17, 2009, which day was a Monday. Is the notice timely sent, so as to suspend the running of the SOL? What if April 17 was a Thursday?
c. Ms. Wilson did not report approximately $40,000 of cash she embezzled from her employer in 2005. The embezzlement was discovered in 2008. She was prosecuted in state court for the crime and pled guilty in 2009. The IRS sent the Wilsons a notice of deficiency dated October 24, 2009, including the $40,000 in their income and disallowing certain charitable deductions for lack of substantiation. Ms. Wilson acknowledges that, for obvious reasons, she did not report the embezzlement income on her 2005 tax return even though she had been advised it was taxable and should have been reported. The Wilsons otherwise reported $200,000 of gross income on a timely filed return.
(i) Is the notice of deficiency mailed timely? Assuming it is timely, can the Service also make the adjustment relating to the charitable deduction?
(ii) Would your answer in (i) above change if your client had filed a correct, amended return on December 1, 2007?
(iii) In light of Badaracco, do you agree that a person who files a fraudulent return with the intent to evade should never file a correct amended return?