Reimbursement for return error can be taxable to client

Article Abstract:

Recent rulings by the IRS seem to contradict the exclusion that it allowed in Clark, 40 BTA 333 (1939). The Clark case refers to the IRS' acquiescence to the Board of Tax Appeals' decision that taxpayers did not have to include a tax professional's reimbursement of additional taxes in gross income since the reimbursement was a recovery of capital, which stemmed from the client's taxability for reimbursements for return error. However, in Rev Rul 57-47, 1957-1 CB 23, the IRS maintained that, if the taxpayer had previously deducted the tax return preparation fee, the refund of such should be included in the gross income. Contrary to the logic presented in Clark, the IRS seems to hold the view in the latter case that exclusion can be availed of only if the reimbursement stems from an error in the preparation of the return, and not on the face of the return.

Tax exclusion

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Tentative return does not start time limit

Article Abstract:

The Tax Court has ruled against the IRS in the 'Zeier' case. The case involved the determination of the start of the statute of limitations (SOL) for refund claims for a disputed estate tax return. According to the Tax Court, the IRS could not start the running of the SOL from the date when the representative of a decedent's estate sent an incomplete tax return since this did not trigger the SOL. The Tax Court made its ruling after examining the circumstances in which the disputed tax return was filed in 1984. Noting that the decedent's representative had meant the return to be tentative since he was unable to resolve all problems related to the estate, the court ruled that the estate was entitled to a refund on estate taxes paid in 1984.

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Mailing is filing only if proof of mailing is incontrovertible

Article Abstract:

The IRS has a general rule that states that a document needs to be physically delivered to it and duly received by it before the document can be acknowledged as having been filed. Under Section 7502, however, the IRS makes one notable exception to this general rule. This exception occurs when the document is delivered to the IRS by the Postal Service bearing a clear and appropriate postmark that dates it as having been mailed prior to the relevant IRS deadline. In such an instance, the IRS waives the physical delivery rule and acknowledges that the document was filed on the date of the postmark. Various issues related to Section 7502, otherwise known as the 'mailbox rule,' are also discussed.

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