Jewish World Review March 29, 2001 / 5 Nissan, 5761
Tax Tales by A. J. Cook
http://www.jewishworldreview.com -- TAXPAYERS shouldn't be late for their very important tax payment date with the Internal Revenue Service.
Tardy taxpayers usually owe a penalty as high as 25 percent of unpaid income taxes.
Before his taxes were due in April, Gerald Broker called his CPA to see how much he owed. Nothing, said the CPA, your losses should offset your income. After that, Broker and his wife extended their return filing date.
Very shortly after that, he and his wife divorced, and he remarried. A batch of expenses came with that change of partners. In addition to the usual split-up and marriage costs, he and his new wife bought a $585,000 house and furnished it well.
To get the money for a down payment, furniture and other expenses, Broker sold all his marketable securities and withdrew $478,000 from his Individual Retirement Accounts.
Shortly before Oct. 15, the extension date, his CPA received some bad news. Late reports from partnerships showed more taxable income than losses, so Broker did owe additional taxes.
But by this time, he had no liquid assets. He immediately sought a bank loan to pay the more than $1 million in taxes and interest.
The IRS wanted more. It demanded a late payment penalty of $100,000.
The Tax Court reversed the penalty, saying Gerald Broker had a reasonable excuse. He relied on his accountant's advice, and when he learned he owed taxes, he quickly took steps to pay.
Even though Gerald may have been broke, he was lucky. Courts rarely reverse late payment penalties. Here, however, are some acceptable means of escape:
- Fire, flood or other disaster.
- Unavoidable absence of the taxpayer.
- Serious and sudden taxpayer illness or serious family member illness.
Inability to pay isn't ordinarily sufficient. But undue hardship that
would cause substantial financial loss might
03/23/01: To give is divine, but you'd better have a good appraisal