Recovering litigation costs.If a taxpayer successfully challenges the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. , can that taxpayer recover reasonable litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. costs? Recently, the Tax Court applied the substantial justification standard when it reviewed Images and Allemeier, two cases involving litigation costs. In Images, Denise Lopez owned and operated a dance studio. The IRS challenged her classification of dance instructors as independent contractors. After interviewing Lopez and the instructors and reviewing the employee manual, the IRS examining agent concluded an employer-employee relationship existed between Lopez and her staff. On administrative appeal, however, the appeals officer decided Lopez would likely win at trial. Lopez then sought to recover reasonable costs of litigating the matter. In Allemeier the taxpayer claimed as business expenses the cost of an MBA MBA abbr. Master of Business Administration Noun 1. MBA - a master's degree in business Master in Business, Master in Business Administration and other expenses related to his work. The IRS argued the MBA was a minimum educational requirement that qualified the taxpayer for a new trade or business. The Tax Court held for Allemeier, who then sought to recover the reasonable litigation costs. Result. In Images, for Lopez; in Allemeier, for the IRS. Under IRC (Internet Relay Chat) Computer conferencing on the Internet. There are hundreds of IRC channels on numerous subjects that are hosted on IRC servers around the world. After joining a channel, your messages are broadcast to everyone listening to that channel. section 7430 (c)(4), a taxpayer who is the prevailing party The litigant who successfully brings or defends an action and, as a result, receives a favorable judgment or verdict. prevailing party n. the winner in a lawsuit. can recover reasonable litigation costs. To be considered as such, the taxpayer must substantially prevail with respect to the amount at issue or the most significant issue presented and meet net worth requirements. In addition the IRS's position must not be reasonably justified. Lopez was considered the prevailing party while Allemeier was not, even though he won his case. In Images the court held the IRS did not substantially justify its position. The employee manuals were guidelines rather than requirements. Further, the dance instructors bought their own music and costumes and determined their fee structures. Therefore, it was not substantially justified for the IRS to reclassify Verb 1. reclassify - classify anew, change the previous classification; "The zoologists had to reclassify the mollusks after they found new species" class, classify, sort out, assort, sort, separate - arrange or order by classes or categories; "How would you these independent contractors as employees. In Allemeier, even though the taxpayer prevailed, the court held the IRS had justified its arguments. * Images in Motion of El Paso, Inc. v. Commissioner, TC Memo 2006-19; Allemeier v. Commissioner, TC Memo 2006-28. Prepared by Michael H. Brown, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , PhD, assistant professor of accounting, Tabor School of Business, Millikin University, Decatur, Ill. |
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