United States Tax Court Decision of the Week-Underpayment Penalties

A recent Tax Court decision was reported dealing with Underpayment Penalties and additional tax.  J. Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator with locations in Raleigh and Wilmington, NC  & North Myrtle Beach and Myrtle Beach, SC works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Couple That Relied Entirely on Tax Prep Software Can’t Avoid Underpayment Penalties: In Ayissi-Etoh v. Comm’r, T.C. Memo. 2018-107, the Tax Court held that a couple was liable for additional taxes for (1) underreporting certain income and not substantiating certain deductions, and (2) underreporting self-employment income from the International Monetary Fund that was subject to self-employment tax. In addition, the court held that the couple was liable for penalties for substantially understating their tax liabilities because the couple did not seek advice from a qualified tax professional but relied entirely on tax preparation software and their tax deficiency amounts exceeded both $5,000 and 10 percent of the amounts required to be shown on their returns.

The issues for decision are whether petitioners: (1) underreported a taxable refund of State income tax; (2) are entitled to deductions claimed on Schedules C, Profit or Loss From Business; (3) are entitled to deductions claimed on Schedules A, Itemized Deductions, for charitable contributions and unreimbursed employee expenses; (4) are liable for self-employment tax on wages received from an international organization; and (5) are liable for accuracy-related penalties. We resolve all issues in respondent’s favor.