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Financial Planning / Tax Strategies
|Subject: Re: A good day||Date: 4/8/2011 1:57 AM|
|Author: irasmilo||Number: 113026 of 121095|
I've now got a very happy client, I'm feeling pretty good to catch something like that, and I get paid to boot. It doesn't get much better than this.
Especially if the oldest year in question is 2008, which is still open after 4/15. No protective claim with a slap-dash DIY estimate of value needs to be done.
Don't knock those slap-dash last minute protective claims! My "good day" story dates from a date almost exactly two years ago. Back in 2004, taxpayer learned that a family member had vanished while owing the TP a seven figure amount. (Loan was documented at the time it was made.) Over the next months, it was learned that the missing person had looted all of his personal assets and was facing multiple civil and criminal charges. At the time TP (and I) believed that the only recourse was to claim a non-business bad debt deduction.
Fast forward to early 2009. Bernie Madoff's exploits are all over the news. The IRS issues guidance for taxpayers claiming losses due to "investments" with Madoff. Light bulb goes off... maybe we can claim the loss as a casualty. Quickly contact client for more information. Client received a court judgment in his favor in early 2005. One week to go before statute of limitations expires on 2005. How much was the judgment for? Client gives me the number and I file the amended return as well as amended returns for all of the years from 2002 forward (NOL). As expected, the IRS asks for more documentation than just my 2-3 sentence explanation of why a seven-figure deduction suddenly appeared. I get copies of the loan documentation, court judgment, news articles regarding the various legal difficulties facing the (now) fugitive should he be found. As I'm preparing the reply to the IRS, I realize that I made a mistake. The court judgment included three items: principal, court costs, and about a year's worth of unpaid interest. I could see claiming the lost principal and court costs, but the unpaid interest had never been reported as income, so it couldn't be a loss. I alerted client that IRS would probably disallow part of the claim.
Strange thing happens next. The examiner who was reviewing the claim doesn't do anything about it. The amended returns for the years other than 2005 were returned as unprocessible pending resolution of the casualty claim. Every time we inquired about the status of the 2005 return we're told "gives us another 6-8 weeks". Finally after 18 months and the intervention of the taxpayer advocate, the casualty claim is accepted as filed - including the unpaid interest.
The story isn't over yet. The fugitive was found, but there weren't any assets recovered. We're still waiting for the IRS to process the other years, but at least this time we know the name of the examiner who is handling the case and she has all of the returns and appears to want to close out the matter expeditiously.
As Peter said when he started his post... it's the stories like these that keep us going.
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