Monday, February 2, 2009

IRS enforcement priorities

News reports indicate that an IRS audit of Senator Daschle's tax return did not turn up any additional tax due. It was only later, in June 2008, when he was self-scrutinizing his tax returns (possibly because his name was under consideration as a possible Vice Presidential candidate) that he determined he might have some additional tax liability.

Apparently the IRS was busy at the time of Senator Daschle's audit with other more pressing enforcement priorities, such as this case noted on Dean Paul Caron's Tax Prof blog.

Tax Court Rejects IRS's Denial of Dependency Deduction for Disabled Son

Your tax dollars at work: Halbin v. Commissioner, T.C. Memo. 2009-18 (Jan. 28, 2009):

On June 24, 2003, as he was leaving his parents’ farm, Eric’s vehicle was hit head-on by a U.S. Postal Service mail carrier who was driving down the wrong side of the road. It took approximately 3 hours for emergency personnel to extricate Eric from his vehicle. Eric suffered severe physical injuries including but not limited to a fractured right knee, a severely dislocated left hip, internal bleeding, and a head injury. Eric’s hip was out of socket for 7-1/2 hours, leading to other physical problems. As a result of his injuries, Eric for some time could not walk, drive, or work. ... Eric was finally forced to move to his parents’ home because he could not afford to live by himself.

Eric resided with his parents from December 2003 to sometime in December 2006. During 2004 Eric had no income and received no government payments. Petitioner and Mr. Halbin paid all of his living expenses, including his grocery and medical expenses, and they paid all of the housing costs for their home.

In addition to Eric’s accident in 2003, petitioner and Mr. Halbin had to contend with other problems. In 2003 Mr. Halbin developed an illness that was not diagnosed correctly until 2004, when he had surgery to remove his gall bladder. Until his condition was finally diagnosed, Mr. Halbin thought that he was dying of cancer. At times Mr. Halbin was so sick that he could not get out of bed. Other times he was able to help petitioner around the farm. It fell on petitioner, who was still holding down a full-time job, to care for both Mr. Halbin and Eric during 2004. ...

During 2004 petitioner’s son, Eric, was 26 years old and incapacitated from an automobile accident. He resided during 2004 in his parents’ home. Both petitioner and Mr. Halbin testified credibly that they paid 100 percent of Eric’s expenses during 2004, including his grocery and medical expenses, that Eric could not and did not work during 2004, and that Eric had no income or support from sources other than his parents. The testimony establishes Eric’s total support from all sources and proves that petitioner and her husband provided all of Eric’s support during 2004. We conclude on this record that petitioner is entitled to a dependency exemption deduction for Eric.

(Hat Tip: Carlton Smith & Christine Lipman.)

I am relieved that the Tax Court ultimately ruled in favor of the taxpayers, finally allowing them to claim their disabled son as their dependent, but I share Dean Caron's concern that many hours of government employee time must have been spent pursuing these taxpayers for claiming a dependent that they were so clearly entitled to claim. Surely, the IRS attorney assigned to this case could have decided to settle it by concession prior to trial.

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