Problem
I. Paul Perplexed's 20X1 income tax return was audited in January 20x3. The IRS assessed and Paul paid the tax, interest, and penalties on August 2, 20X3, On August 13, 20X3, Paul filed a claim for refund on Form 1040X to recover the full amount that he had paid. Paul consults you today to see what further action he can take to get his money back. He has lived at the same address for the entire period since he filed his claim for refund and he has never received any correspondence from the IRS either allowing or disallowing the claim for refund.
i. What is the last date on which Paul can successfully bring a lawsuit against the IRS to recover his taxes, interest, and penalties that he paid in 20X3?
ii. What is the earliest date that Paul could file a lawsuit on the claim?
II. Following an audit of his 20X1 income tax return, the IRS assessed Charlie Cheapskate as a result of the disallowance of certain deductions. In addition to the tax, the IRS assessed interest and a negligence penalty. Charlie wishes to dispute the propriety of this assessment and he consults you regarding the most economical way in which to do it. He has heard that the deduction challenged has been consistently allowed by the Court of Federal Claims and consistently disallowed by the Tax Court. Charlie tells you that he only has enough money to pay the tax. He cannot pay the interest and penalty. Charlie wants to know whether he can take his case to the Court of Federal Claims.
III. The IRS audits Correcto Corp's 20X1 income tax return. In 20X3, the corporation pays an assessment of $100,000 of additional tax resulting from the disallowance of travel expense. Three weeks later the corporation files a claim for refund seeking a refund of $100,000 resulting from the denial of deductions for ordinary and necessary business expenses deductible under Code Secs. 161 though 169. The IRS denies the claim for refund so the corporation files a lawsuit. After the taxpayer files suit, the accountant determines that the substantiation for the travel expenses in fact was insufficient, but also determine that the deprecation deduction for the corporation should have been $300,000 greater than the amount claimed on the return. Because the agent had disallowed $300,000 in travel expenses, the accountant is of the opinion that the claim for refund should be allowed. IRS opposes the suite for refund. Who wins?
IV. NOL Corporation filed its 20X3 tax return on March 15, 20X4, reporting à loss of $100,000. The corporate accountant simply chose to use the loss of offset income earned in 20X4 rather than carry the loss back to years 20X1 and 20X2.The IRS is currently auditing the 20X3 tax return. On May 11, 20X7, the revenue agent proposed to disallow the loss carried forward to 20X4 because the taxpayer did not make an affirmative election to forego the carry back. See Code Sec. 172(b)(3).
i. Is there anything the accountant can do to preserve the use of the net operating loss that was carried forward?
ii. Would your answer change if the Revenue Agent proposed to disallow the carry forward loss on March 13, 20X7?