Income Tax and Sale of Principal Residence
An individual was entitled to the full statutory exclusion of gain on the sale of a principal residence under Code Sec. 121, not half as alleged by the IRS. The taxpayer sold a home she used as a principal residence and owned jointly with another person to whom she was not married. She satisfied the ownership and use tests of Code Sec. 121.
There is nothing in Code Sec. 121 providing for the limitation asserted by the IRS and Reg. 1.121-2(a)(2) specifically states that unmarried joint owners each owning a 50-percent interest in the residence are entitled to the full $250,000 exclusion of gain upon sale of the residence. Sung Huey Mei Hsu v. Commissioner., U.S. Tax Court, T.C. Summary Opinion 2010-68, (Jun. 7, 2010).
Tax Protestors
The Department of Justice (DOJ) sued George Pragovich and his company, National Justice Center, on January 12, 2010 seeking a permanent injunction to stop him from promoting a nationwide scheme to generate frivolous lawsuits against the IRS. Pragovich refers to himself as a “strict Constitutionalist” who does not recognize the 11th through the 26th amendments of the Constitution, including the 16th amendment providing for the income tax, the complaint alleges.
According to the DOJ, customers from at least 35 different states have used Pragovich’s scheme to file over 200 frivolous lawsuits in federal district court. Every lawsuit filed under Pragovich’s scheme has been dismissed, according to the pleadings. Despite repeated dismissals, however, Pragovich continues to promote the lawsuit scheme. He allegedly stated to customers that he intends to “bury” the Justice Department and the courts with at least 1,000 lawsuits in 10 separate jurisdictions. He also allegedly told customers that if they win their lawsuits, they will never have to file a federal income tax return or pay federal income taxes, and that the lawsuits will eliminate the IRS.
IRS Employment Tax Audits
IRS officials revealed that employment tax examinations conducted under the IRS’s employment tax national research project (NRP), which got underway in February, will be “somewhat more invasive than other employment tax audits,” according to Faris Fink, deputy commissioner, IRS Small Business/Self-Employed (SB/SE) Division. The exams will be more invasive due to the greater number of issues the IRS will look at, Fink added, speaking at a May 27 District of Columbia bar luncheon in Washington, D.C.
The IRS has already begun one-third of the random employment tax audits conducted as part of the program. According to Fink, employment tax has been a “significant problem for the IRS in general.” The IRS’s NRP is more interested in the filing component of Form 941 rather than in payment issues, Tuzynski said.
When conducting the employment tax examinations, revenue agents will have the “source returns,” said Tuzynski, such as, if applicable, corporate returns, shareholder returns, Schedule K’s for partners, and Forms 1099-M. The IRS will also have forms reporting cash transactions of more than $10,000, if the IRS has them, and copies of CPE 2100. Tuzynski said that the IRS will also look at a business’s website, if it has one, as part of its plan to gather as much information and understand as much about the business as possible.