Tax Court Corner: Be Prepared to Substantiate Your Claims

21 Sep 2016  |  1038
Tax Court Corner: Be Prepared to Substantiate Your Claims

Tax Court Corner: Be Prepared to Substantiate Your Claims

In the US Court of Appeals for the 11th Circuit comes a case brought on by Mark Jasperson. As the appellant, his case can ce surmised by simply stating that one should always “dot their i’s and cross their t’s” when a tax return is prepared. The case, Jasperson v. Commissioner, was first heard by the US Tax Court, where a ruling was entered for the Commissioner. The case revolves around a net operating loss (NOL).

In 1998, Jasperson, a former bankruptcy attorney, formed 5215 Development Inc., an S corporation that liquidated video stores. Initially, 5215 Development was profitable; however, in 2005, the company lost $750,262, and in 2006, the company lost $237,596. Instead of carrying back the losses for two years, Jasperson carried forward the losses and they flowed through to his individual tax return.

For the years 2008 to 2010, Jasperson claimed NOL deductions in the amounts of $217,768, $58,855, and $110,080, respectively. For tax years 2008 to 2010, his personal returns reflected those losses and reduced his income.

However, Jasperson did not attach detailed schedules to his returns explaining the calculations underlying those deductions as required by 26 CFR § 1.172-1(c). In May 2013, the IRS sent Jasperson a notice of deficiency stating that he owed $44,341, $21,379, and $26,245 for tax years 2008 to 2010, and that he was being penalized $8,868, $4,275, and $5,249 for substantially understating his income for those years. The notice of deficiency stated that Jasperson’s NOL deductions for 2008 to 2010 were disallowed because he could not substantiate that he incurred a deductible loss. Jasperson challenged the IRS determination in the Tax Court.

Although the trial was originally scheduled for May 19, 2014, Jasperson requested a continuance. Read More: //


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