Welcome to TaxBlawg, a blog resource from Chamberlain Hrdlicka for news and analysis of current legal issues facing tax practitioners. Although blawg.com identifies nearly 1,400 active “blawgs,” including 20+ blawgs related to taxation and estate planning, the needs of tax professionals have received surprisingly little attention.
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As my readers know, I focus my practice on representing people who have “misunderstandings” with the Internal Revenue Service. I can’t count the number of clients who have made a comment along the lines of “get me Geithner’s deal” since it came to light that he had some significant and frankly embarrassing tax problems while working for the International Monetary Fund. In point of fact, making a statement like that to an IRS employee is probably one of the worst things a taxpayer could say, because the rank and file IRS employees realize that if they did what Mr. Geithner did, they would be fired on the spot.
That said, someone recently tried this, and he is the subject of Parker v. Commissioner in TC Summary Opinion 2210-78. Like Mr. Geithner, David Parker worked for the International Monetary Fund, and also like Mr. Geithner, he received income subject to self-employment tax, but did not report it on his 2005 and 2006 income tax returns, or pay it. He got a W-2 from the IMF that showed that no federal income tax, Social Security or Medicare had been withheld from his earnings. When he filed his tax returns, the lines for self-employment tax were left blank. The Internal Revenue Service determined that this behavior warranted what is known as the accuracy related penalty (20% of the tax deficiency), and asserted it against him for both 2005 and 2006.
Mr. Parker took his case to the U.S. Tax Court and lost. Interestingly enough, he asked the Court for the same “favorable treatment” which Mr. Geithner had received, claiming that his case was “incredibly similar” and that “there should not be different or favorable rules for the well-connected.” Tax Court Judge Carolyn Chiechi was not amused, and devoted an entire footnote to explaining that the record does not establish any special treatment that Mr. Geithner received, but also noting that such facts would be irrelevant to her resolution of the issues presented in Mr. Parker’s case.
There is a further interesting aspect of this case. In 2006, the Internal Revenue Service was aware of the IMF practice and created a “settlement initiative” for all employees at foreign embassies, foreign consultant offices and international organizations in the United States. Before taking this case to the Tax Court, Mr. Parker made an effort to take advantage of this settlement initiative – it was not an amnesty – but for a variety of reasons he and the IRS never reached a meeting of the minds on it. Unfortunately, the record in the case does not explain what that settlement initiative would have allowed him to do, but this writer suspects that it would have provided very favorable terms with respect to the penalties.
What is the morale of this story? Don’t count on getting the same break you think someone else got.