Individual Formal Protest

Below are examples of an individual 1040 formal protest we submitted to the IRS on behalf of a client. We have entered blanks to protect the identity of the clients.

April 16, 2009

Internal Revenue Service
Group Manager
Attn: –02AWN
9450 Koger Blvd., Rm 201
St. Petersburg, FL 33702-2414

Re: ——- ——-
Taxpayer Identification Number: ***-**-****
Examination for Tax Years Ended: December 31, 2004
December 31, 2005, December 31, 2006, and December 31, 2007

Dear Mr. ——-,

——- ——- hereby protests the proposed adjustments to income and expenses as set forth paragraph 6 below. This protest is filed with respect to the 30 Day Letter (Letter 91 5(DO)) dated March 17, 2009, and the accompanying explanations. Taxpayer reserves the right to file one or more supplements to this protest.

The following information is submitted in support of this protest:

1.Taxpayer’s name, address and identification number:
——- ——-
400 —— — Drive
#—
Sarasota, FL 34236
SSN: ***-**-****

Taxpayer is a calendar year-end taxpayer. Taxpayer filed his federal income tax return on Form 1040.

2.Date of the 30 Day Letter: March 17th, 2009.

3.Taxable years at issue: 200412, 200512, 200612, 200712

4.Request for conference: Taxpayer requests a conference with the Internal

Revenue Office of Appeals in the Plantation, FL office with respect to the findings of the examining Revenue Agent.

5. Request to be present at, and receive documents relating to, certain Appeals
communications: In accordance with section 1001(a) of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Taxpayer requests to be present at all communications between the Internal Revenue Service Examination Division and the Appeals Division with respect to this matter. Taxpayer requests advance notice of such communications so that Taxpayer can arrange to be present. In addition, Taxpayer requests to be present at all communications between Chief Counsel representatives and the Appeals Division with respect to this matter. Taxpayer requests advance notice of such communications so that Taxpayer can arrange to be present. Taxpayer further requests copies of all written communications and summaries of any oral communications between the Internal Revenue Service Examination Division and the Appeals Division with respect to this matter. Finally, Taxpayer requests copies of all communications, whether written or written summaries of oral communications, between the Examination Division and any third party that occurred during the course of the examination of Taxpayer.

6.Taxpayer does not agree with, and hereby protests, all proposed adjustments for
his tax years ended 12/31/2004, 12/31/2005, 12/21/2006 and 12/31/2007 in the 30 Day Letter including those set forth below:

Adjustments to Income/Expenses

Tax year 200412:

Schedule C1 – expenses for Business Use of Home – $2835
Schedule C1 – Gross Receipts or Sales – $51,796
Schedule E – Income/Loss Partnership/S Corp – Passive/Non-Passive – $33,551
SE AGI Adjustment – $(3859)

Tax year 200512:

Schedule C1 – Gross Receipts or Sales – $120,631
Schedule E – Income/Loss Partnership/S Corp – Passive/Non-Passive – $(59,957)
SE AGI Adjustment – $(1756)
Capital Gain or Loss – $9934

Tax year 200612:

Schedule C1 – Gross Receipts or Sales – $123,021
Schedule E – Income/Loss Partnership/S Corp – Passive/Non-Passive – $(75,283)
SE AGI Adjustment – $(6372)
Exemptions – $748

Tax year 200712:

Wages, Salaries and Tips, etc. – $754,414
Schedule E – Income/Loss – Partnership/S Corp – Passive/Non-Passive – $(189,525)
SE AGI Adjustment – $9058

Adjustments to Penalties/Code Sections
Tax Years 200412 200512 200612 200712

Delinquency – IRC 6651(a)(1) 7651.30 24,889.50 15,637.50 17,574.39

Estimated Tax – IRC 6654 126.26 1640.99 29.99

Accuracy – IRC 6662 5980.69 5522.00 5290.80 36,553.00
General Background:

——- ——- should be given the opportunity to present his proper income and expenses for tax years ended 2004, 2005, 2006 and 2007.
Issue 1: Schedule E – Income/Loss (Passive Activity)

Is the taxpayer entitled to deduct the passive activity loss of $273,909 on his 2007 Form 1040 as a result of his real estate activities?

Facts
The taxpayer operates a real estate development business. In this business, he actively sought to purchase residential properties that had a good possibility of increasing in value within a short period of time. The primary purpose for purchasing these properties was to realize a gain on sale in the short run and not for rental purposes.

Unfortunately, the unexpected downturn in the real estate market has impacted the ability of these properties to appreciate in value quickly. Faced with the possibility of not being able to sell these properties as soon as the taxpayer intended, he started to rent them out in order to positively impact his bottom line.

The taxpayer spends considerable amount of time researching for and investigating new investments. He also spends considerable time managing the properties he currently owns.

The taxpayer owned ten rental properties during this tax year. The properties were purchased on the following dates:

26** Trico Rd – 9/7/2005
88** Wawana Rd – 9/7/2005
83** Teepee Ave – 8/24/2005
81** Teepee Ave – 8/24/2005
156** Luna Ridge – 8/30/2006
20** SE 27th Terrace – 9/11/2006
2** Dwyer – 0/1/2006
44** McAllister Lane – 7/12/2006
3** County Road – 9/27/2006
70** 74th St. Circle E – 1/1/2005

The taxpayer materially worked more than 750 hours on his real estate development business and has performed more than one half of his personal services on this business during the taxable year.

Law
IRC Section 469, states, in part
(a) DISALLOWANCE

(1) IN GENERAL

If for any taxable year the taxpayer is described in paragraph (2),
neither–

(A) the passive activity loss, nor

(B) the passive activity credit,

for the taxable year shall be allowed.

(2) PERSONS DESCRIBED

The following are described in this paragraph:

(A) any individual, estate, or trust,

(B) any closely held C corporation, and

For purposes of this section–

(1) IN GENERAL

The term “passive activity” means any activity–

(A) which involves the conduct of any trade or business, and

(B) in which the taxpayer does not materially participate.

(2) PASSIVE ACTIVITY INCLUDES ANY RENTAL ACTIVITY

Except as provided in paragraph (7), the term “passive activity”
includes any rental activity.

(7) SPECIAL RULES FOR TAXPAYERS IN REAL PROPERTY BUSINESS

(A) IN GENERAL

If this paragraph applies to any taxpayer for a taxable year–

(i) paragraph (2) shall not apply to any rental real estate
activity of such taxpayer for such taxable year, and

(ii) this section shall be applied as if each interest of
the taxpayer in rental real estate were a separate
activity.

Not withstanding clause (ii), a taxpayer may elect to treat all
interests in rental real estate as one activity. Nothing in the
preceding provisions of this subparagraph shall be construed as
affecting the determination of whether the taxpayer materially
participates with respect to any interest in a limited
partnership as a limited partner.

(B) TAXPAYERS TO WHOM PARAGRAPH APPLIES

This paragraph shall apply to a taxpayer for a taxable year if–
(i) more than one-half of the personal services performed
in trades or businesses by the taxpayer during such taxable
year are performed in real property trades or businesses in
which the taxpayer materially participates, and

(ii) such taxpayer performs more than 750 hours of services
during the taxable year in real property trades or
businesses in which the taxpayer materially participates.

In the case of a joint return, the requirements of the preceding
sentence are satisfied if and only if either spouse separately
satisfies such requirements. For purposes of the preceding
sentence, activities in which a spouse materially participates
shall be determined under subsection (h).

For purposes of this paragraph, the term “real property trade or
business” means any real property development, redevelopment,
construction, reconstruction, acquisition, conversion, rental,
operation, management, leasing, or brokerage trade or business.
I.T. Regulation Section 1.469-9

(g) ELECTION TO TREAT ALL INTERESTS IN RENTAL REAL ESTATE AS A SINGLE
RENTAL REAL ESTATE ACTIVITY —

(1) IN GENERAL. A qualifying taxpayer may make an election to treat
all of the taxpayer’s interests in rental real estate as a single
rental real estate activity. This election is binding for the taxable
year in which it is made and for all future years in which the
taxpayer is a qualifying taxpayer under paragraph (c) of this
section, even if there are intervening years in which the taxpayer is
not a qualifying taxpayer. The election may be made in any year in
which the taxpayer is a qualifying taxpayer, and the failure to make
the election in one year does not preclude the taxpayer from making
the election in a subsequent year. In years in which the taxpayer is
not a qualifying taxpayer, the election will not have effect and the
taxpayer’s activities will be those determined under section 1.469-4.
If there is a material change in the taxpayer’s facts and
circumstances, the taxpayer may revoke the election using the
procedure described in paragraph (g)(3) of this section.

IRC Section 212 states, in part
In the case of an individual, there shall be allowed as a deduction all the
ordinary and necessary expenses paid or incurred during the taxable year–

(1) for the production or collection of income;

(2) for the management, conservation, or maintenance of property held for
the production of income; or

(3) in connection with the determination, collection, or refund of any tax.

IRS Letter Ruling # 200834020 dated 01/31/2008 states, in part:
Under I.T Reg Section 301.9100-1(c) the Commissioner may grant a reasonable extension of time under the rules set forth in § § 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Code, except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term “regulatory election” as an election whose due date is prescribed by a regulation published in the Federal Register, or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.
Analysis

The passive activity loss rules provide relief from the rule that all rental activities are passive activities for certain real estate professionals. IRC Section 469(c)(7). The rental real estate activities of qualifying taxpayers are not subject to the rule that treats all rental activities as passive. IRC Section 469(c)(7). Thus, a rental real estate activity of a qualifying taxpayer is not passive if the taxpayer materially participates in the activity. Further, each of a qualifying taxpayer’s interests in rental real estate is treated as a separate activity, unless the taxpayer elects to treat all interests in rental real estate as a single activity. To make the election, the taxpayer must file a statement for the tax year declaring that he or she is a qualified taxpayer for the tax year and is making the election pursuant to IRC Section 469(c)(7)(A). I.T. Reg. Section 1.469-9(g)(3).
To qualify under this provision, a taxpayer must satisfy two tests. First, over one-half of the personal services performed by the taxpayer in trades or businesses during the tax year must be performed in real property trades or businesses in which he materially participates. Second, the taxpayer must perform more than 750 hours of services during the tax year in real property trades or businesses in which he materially participates. The taxpayer has satisfied both of these tests to the IRS’ satisfaction.

The determination of whether a trade or business is a real property trade or business is based on all the relevant facts and circumstances, and taxpayers may use any reasonable method of applying such facts and circumstances to make such a determination.
The taxpayer states that he is a qualified taxpayer under IRC Section 469(c)(7). The taxpayer elects pursuant to IRC Section 469 (c)(7)(A) to treat all his interests in rental real estate as a single activity. The real estate activities are as follows:

The taxpayer relied upon a qualified tax professional, who failed to properly prepare the election to treat all interests in rental real estate as a single rental real estate activity. The taxpayer filed his tax return without the statement required by IRC Section 1.469-9(g)(3). However, under LTR 200834020 dated 01/31/2008 (and other numerous letter rulings ), the IRS has stated that, when a taxpayer has acted in reasonably and in good faith, requests for relief subject to I.T. Section 301.9100-3 will be granted by the IRS.

Conclusion
Taxpayer is a real estate professional, is requesting that the extension of time to file the election to treat all rental activities as one activity be granted pursuant to I.T Regulation Section 301.9100-1(c) and is therefore electing to treat all of the rental real estate activities as a single activity. The passive activity loss limitation rules of IRC 469, should therefore not be applied and the full deduction of $273,909, should be allowed.

Issue 2: Gross Receipts or Sales

Must the taxpayer report additional officer’s compensation for all years under audit?
Fact, Law, Analysis, and Conclusion
Please refer to our protest for ——- ——- Enterprises, Inc. for a complete analysis and explanation of our protest position. Taxpayer protests the adjustment to officer’s compensation proposed by the IRS.

Issue 3: Schedule E – Pass thru Income/Loss – Partnership/S Corporation

Must the taxpayer make the pass thru adjustments from the audit of ——- ——- Enterprises, Inc. (1120S) for all years under audit?
Fact, Law, Analysis, and Conclusion

Please refer to our protest for ——- ——- Enterprises, Inc. for a complete analysis and explanation of our protest position. Taxpayer protests the adjustment to above noted
Form 1120S corporation proposed by the IRS.

Adjustments to Penalties/Code Sections

Issue 1: Delinquency Penalty – Section 6651(a)(2)
Should the taxpayer be liable for the delinquency penalty for all of the years under audit?

Facts
The taxpayer relied upon qualified tax preparers to prepare his tax returns for all of the years under audit.

Law
IRC 6651 states in part:
(a) ADDITION TO THE TAX

In case of failure–

(1) to file any return required under authority of subchapter A of chapter
61 (other than part III thereof), subchapter A of chapter 51 (relating to
distilled spirits, wines, and beer), or of subchapter A of chapter 52
(relating to tobacco, cigars, cigarettes, and cigarette papers and tubes),
or of subchapter A of chapter 53 (relating to machine guns and certain
other firearms), on the date prescribed therefor (determined with regard
to any extension of time for filing), unless it is shown that such failure
is due to reasonable cause and not due to willful neglect, there shall be
added to the amount required to be shown as tax on such return 5 percent
of the amount of such tax if the failure is for not more than 1 month,
with an additional 5 percent for each additional month or fraction thereof
during which such failure continues, not exceeding 25 percent in the
aggregate;

Analysis
The taxpayer spends a considerable amount of time traveling throughout the United States and in doing so has relied upon tax professionals to prepare his tax returns timely. He has always acted responsibly in this regard.

Conclusion
The taxpayer has shown reasonable cause as prescribed by IRC Section 6651 and therefore believes that this penalty should be waived for all years under audit.

Issue 2: Accuracy – Related Penalties under IRC 6662

Should the taxpayer be liable for the accuracy related penalties for all of the years under audit?

Facts
The taxpayer is unsophisticated as it relates to income tax matters. He has continually relied upon tax professionals to prepare his tax returns. He asked questions about the preparation of his tax returns and was assured by the tax professionals that the tax returns were being prepared correctly and met the “more likely than not” reporting standard.

Law
IRC Section 6662 states in part:
(B) REDUCTION FOR UNDERSTATEMENT DUE TO POSITION OF TAXPAYER OR
DISCLOSED ITEM

The amount of the understatement under subparagraph (A) shall be
reduced by that portion of the understatement which is
attributable to–

(i) the tax treatment of any item by the taxpayer if there
is or was substantial authority for such treatment, or

(ii) any item if–

(I) the relevant facts affecting the item’s tax
treatment are adequately disclosed in the return or in
a statement attached to the return, and

(II) there is a reasonable basis for the tax treatment
of such item by the taxpayer.

Analysis
The taxpayer relied upon his tax preparers stating that the positions taken on his tax returns complied with the substantial authority standard.

Conclusion
The taxpayer has acted reasonably in having his tax returns prepared by qualified tax preparers and should not be liable for the accuracy-related tax penalties for all of the years under audit.
________________________

As noted above, Taxpayer reserves the right to file one or more supplements to this protest, as appropriate. We would be pleased to discuss with you a schedule for resolving this appeal promptly.

Please continue to direct all future correspondence concerning this matter to:

Jeffrey Galante
Tax Litigation Associates

Respectfully submitted,
By:

Jeffrey Galante
Enrolled Agent
Tax Litigation Associates

REPRESENTATIVE’S PERJURY DECLARATION
Under penalties of perjury, I declare that this protest was prepared under my supervision and although I do not know of my own knowledge if the facts contained herein are true, on the basis of the information furnished me, I believe them to be true and correct.

By:

Jeffrey Galante
Enrolled Agent
Tax Litigation Associates

October 7, 2009

Tax Litigation Associates

4701 N. Federal Highway, Suite 400

Pompano Beach, FL 33064

Internal Revenue Service

Mr.William England, Technical TerritoryManager

Attn: Mark Butera, Technical Services

955 So. Springfield Ave.

Springfield, NJ 07081

Re: R———– & S————-

Taxpayer Identification Number: ————

Examination for Tax Years Ended: December 31, 2006 and

December 31, 2007

Dear Mr. Butera,

—————————–hereby protest the proposed adjustments as set forth

paragraph 6 below. This protest is filed with respect to the Statutory Notices of Deficiency Letters

(Letter 531-T) dated July 15, 2009, and the accompanying explanations. Taxpayer reserves the

right to file one or more supplements to this protest.

The following information is submitted in support of this protest:

1. Taxpayer’s name, address and identification number:

——————————-

24—————Ct

—————–, NJ 08502-5346

Taxpayers are calendar year-end taxpayers. Taxpayers filed their federal income tax return on

Form 1040.

2. Dates of the Notice of Deficiency Letters: July 15, 2009.

3. Taxable years at issue: 200612, and 200712

4. Request for conference: Taxpayer requests a conference with the Internal

Revenue Office ofAppeals in the Plantation, FL officewith respect to the findings of the

examining RevenueAgent, or that the Appeals hearing be conducted telephonically if

the Appeals Office assigned to this case is not located in southeast Florida.

5. Request to be present at, and receive documents relating to, certain Appeals

communications: In accordance with section 1001(a) of the Internal Revenue Service

Restructuring and ReformAct of 1998, Pub. L. No. 105-206, Taxpayer requests to be present

at all communications between the Internal Revenue Service Examination Division and the

Appeals Division with respect to this matter. Taxpayer requests advance notice of such

communications so that Taxpayer can arrange to be present. In addition, Taxpayer requests to be

present at all communications betweenChiefCounsel representatives, and the Appeals Division

with respect to thismatter. Taxpayer requests advance notice of such communications so that

Taxpayer can arrange to be present. Taxpayer further requests copies of all written

communications and summaries of any oral communications between the Internal Revenue

Service Examination Division and the Appeals Division with respect to thismatter. Finally,

Taxpayer requests copies of all communications, whether written or written summaries of oral

communications, between the Examination Division and any third party that occurred during

the course of the examination of Taxpayer.

6. Taxpayers do not agree with, and hereby protest, all proposed adjustments for

tax years ended 12/31/2006 and 12/31/2007 in the Notice of Deficiency including those set

forth below:

Adjustments to Income/Expenses

General Background:

———————-m do not believe that the Revenue Agent gave due

consideration to the evidence provided by the taxpayers during the audit process and

ask for an independent party to review the accompanying evidentiary documents that

support the expenses that were claimed by the taxpayers on their Form 1040 tax returns

for tax years ended 12/31/2006 and 12/31/2007.

Issue: Schedule C1 – Expenses for Business Use of Home

Tax Years

200612 200712

Revenue Agent’s proposed adjustments $30,292 $24,323

Facts

Mr.——————————used his home for his computer consulting

business that is separate and apart from his work as a Senior Systems Engineer

with ———————–, Inc., and the American Institute of Certified

Public Accountants. Please find the enclosed declaration by the taxpayer that

certifies that his business use of home was for his schedule C, consulting

business. The taxpayer has substantial experience and credentials that resulted in

his being recruited to work as an outside computer consultant for firms with

offices throughout the world. None of these companies provide workspace for the

taxpayer.

Also, please find photographs of the taxpayer’s home office which shows that the

space is dedication solely and exclusively for his Schedule C business.

Law

There are two basic requirements for the allowance of home office expenses, as follows:

1. Regular and Exclusive Use. You must regularly use part of your home exclusively for conducting business. For example, if

you use an extra bedroom to run your online business, you can take a home office deduction for the extra bedroom.

2. Principal Place of Your Business. You must show that you use your home as your principal place of business. If you conduct

business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may

qualify for a home office deduction. For example, if you have in-person meetings with patients, clients, or customers in your home

in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses

for the part of your home used exclusively and regularly for business. You can deduct expenses for a separate free-standing

structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to

be your principal place of business or the only place where you meet patients, clients, or customers.

Analysis

The taxpayer performed computer consulting for companies needing 24/7 monitoring

support. The work requires computer monitoring using equipment located in the taxpayer’s

home office. The companies that retain the taxpayer for the consulting/monitoring activities

do not provide a workplace for the taxpayer. The taxpayer has a dedicated home office that

is used regularly and exclusively for his Schedule C consulting business. The home office is

also the principle place of work for the Schedule C consulting business.

Not until we received the Revenue Agent’s final report, did we learn that the home office

deduction would be disallowed because the home office was being used by the taxpayer as

an employee, and that the taxpayer did not use the home regularly and exclusively for that

purpose. The Revenue Agent was concentrating on the amount of income and expenses

being deducted on the tax returns and did not consider the fact that the taxpayer used the

home not for his employers, but for other firms, who retained him as a consultant.

Conclusion

The Revenue Agent did not gather the evidence necessary to determine whether or not the

taxpayer met the above two referenced tests. The Revenue Agent incorrectly determined that

the home office was used by the taxpayer for work being performed by him for his two

employers. The Agent did not correctly determine the fact that the Schedule C business

activity was for companies other than those two firms for which the taxpayer was working as

an employee. We believe that the taxpayer met the two critical tests and that the claimed

deductions for home office should be fully allowed.

Issue: Schedule C1 -Meals and Entertainment

Tax Years

200612 200712

Revenue Agent’s proposed adjustments $1900 $1900

Issue: Schedule C1 – Travel

Tax Years

200612 200712

Revenue Agent’s proposed adjustments $6000 $5050

Issue: Schedule C1 – Rent/Lease – Vehicles/Machinery/Equip.

Tax Years

200612 200712

Revenue Agent’s proposed adjustments $8830 $9321

Issue: Schedule C1 – Car and Truck Expenses

Tax Years

200612 200712

Revenue Agent’s proposed adjustments $19,070 $14,155

Facts, Law, Analysis, Conclusion

We are requesting that an independent review of the enclosed documents that are being

submitted to substantiate the above referenced issues, be conducted to ascertain and make the

correct decision regarding substantiation of the above referenced business expenses. We

believe that this matter involves the decision as to whether the enclosed documents meet the

Code requirements. From our perspective, the information and documents do conform to

both the spirit and letter of the Code requirements.

Please find the enclosed documents:

Explanation for using bank statements for evidence of payment

? Vehicle business mileage log

? Auto maintenance invoices

? Car lease payments

? Car insurance payments

? Gasoline receipts

? Travel and meals expense credit card statement and taxpayer calendar

We respectfully request that you consider the taxpayer’s unique situation that caused his

inability to prove actual receipts for payment of his expenses. As you will note in the

attached taxpayer’s explanation for using bank statements for evidence of payments, in

November, 2008, the taxpayer’s septic pump failed, and flooded his entire storage area.

Since most of the taxpayer’s payments are posted on his debit card, his only alternative was

to prove the enclosed bank statement to prove business payments. Please find the enclosed

copy of the bill from the ——————t Group, for support for the taxpayer’s statement.

We believe that the Revenue Agent did not take into consideration the taxpayer’s unfortunate

situation into consideration when the Revenue Agent reviewed the information we

previously provided to substantiate the above referenced business expense. We respectfully

request an independent review of the taxpayer’s unique situation and the compiled evidence

we have submitted in order to reverse the Revenue Agent’s adjustments.

Issue: Other Unreimbursed Employee Expenses

Tax Years

Revenue Agent’s proposed adjustments 200612 200712

$21,430 $16,529

Facts, Law, Analysis, Conclusion

Please consider the enclosed statement and supporting evidence for substantiation of the

other unreimbursed employee expenses. The taxpayer, ———————-, is a Family

——————–, working at Columbia University in City of New York. The taxpayer was

hired in 2007 as a registered nurse on a contingent basis that she becomes a board certified

Family ——————–. The taxpayer had to attend the Family—————-training

program at Pace University and pay the full tuition on her own, since a similar program was

not offered at Columbia University.

Please find the enclosed documentation to substantiate the fact that the taxpayer paid the

tuition for the Family Nurse Practitioner certification program, and for her unreimbursed

automobile mileage expense that was required by the clinical training schedule.

The Revenue Agent’s position for disallowing this expense was because the taxpayer did not

provide documentation to verify her employee business expense. It is our position and belief

that the enclosed documentation, including the taxpayer’s own testimony, does provide

adequate documentation to substantiate the taxpayer’s other unreimbursed employee

expenses.

We therefore ask that the Revenue Agent’s adjustments be reversed.

Adjustments to Penalties/Code Sections

Tax Years

200612 200712

Accuracy – IRC 6662(a) $3614.60 $2893.00

Issue 2: Accuracy – Related Penalties under IRC 6662

Should the taxpayer be liable for the accuracy related penalties for all of the years under audit?

Facts

The taxpayers are unsophisticated as it relates to income tax matters. Because of the flood in

their storage area in 2008, they were unable to provide orignal documentation of payment for

their expenses. In lieu of that documentation, the taxpayers provided alternative testimony and

evidence.

Law

IRC Section 6662 states in part:

(B) REDUCTION FOR UNDERSTATEMENT DUE TO POSITION OF TAXPAYER OR

DISCLOSED ITEM

The amount of the understatement under subparagraph (A) shall be

reduced by that portion of the understatement which is

attributable to–

(i) the tax treatment of any item by the taxpayer if there

is or was substantial authority for such treatment, or

(ii) any item if–

(I) the relevant facts affecting the item’s tax

treatment are adequately disclosed in the return or in

a statement attached to the return, and

(II) there is a reasonable basis for the tax treatment

of such item by the taxpayer.

Analysis

The taxpayers are very compliant taxpayers and we believe that the imposition of this penalty

would be an extreme inequity.

Conclusion

The taxpayer has acted reasonably, and should not be liable for the accuracy-related tax penalties

for all of the years under audit.

________________________

As noted above, Taxpayer reserves the right to file one or more supplements to this protest, as

appropriate.We would be pleased to discuss with you a schedule for resolving this appeal

promptly.

Please continue to direct all future correspondence concerning this matter to:

Jeffrey Galante

Tax Litigation Associates

4701 N. Federal Highway, Suite 400

Pompano Beach, FL 33064

Respectfully submitted,

By: _____________________

Jeffrey Galante

Enrolled Agent

Tax Litigation Associates

REPRESENTATIVE’S PERJURY DECLARATION

Under penalties of perjury, I declare that this protest was prepared under my

supervision and although I do not know of my own knowledge if the facts contained herein are

true, on the basis of the information furnished me, I believe them to be true and correct.

By: _____________________

Jeffrey Galante

Enrolled Agent

Tax Litigation Associates

cc: —————————— letter only