Tax Guru – Ker$tetter Letter

I’ve already written several times about how IRS has gone overboard in scrutinizing refund claims by auditing the returns as an over-reaction to their incompetence in actually paying out huge sums for nonexistent slavery tax credits.

Perusing the recent Tax Court cases, I saw that this slavery credit came up in a case that was decided yesterday, Hyler v. Commissioner (T.C. Memo 2005–26).  Kleinrock has a good summary of it in their bulletin.

To summarize, this couple filed a 2000 1040, where they claimed a “Black Investment Credit” of $92,861 by using Form 2439, which is for something completely different, Notice to Shareholder of Undistributed Long-Term Capital Gains.  Any competent tax pro would see that such a claim is ridiculous.  However, when the IRS received the 1040, they actually sent these people a check for $93,071, which included this bogus credit and the excess of their withheld taxes over their actual tax. 

After IRS learned of their own stupidity in paying out these kinds of claims, they had to try to recover them, such as the deficiency notice they sent the Hylers in March 2004.  The Hylers used the standard Willie Nelson defense, that it was all the tax preparer’s fault and the IRS should recover the money from him, even though the Hylers’ 1040 had no paid preparer listed.  

It was no surprise that the Hylers lost this case and will have to repay the bogus credit, plus penalties and interest.  Escaping scot-free with no punishment are the morons at the IRS service center who okayed the payment of the credit back in 2001.  In fact, they’ve probably already been promoted by now.