Taxing Lessons From Court Decisions

Kissing Frogs and Debt Relief

Thanks for sharing!

Frog Prince

Writing “paid in full” on the bottom of a check won’t relieve you of debts any more than kissing frogs will un-jinx a royal suitor. The first fairy tale stems in part from section 3-31 of the Uniform Commercial Code, a standard set of laws that governs US financial contracts.

Tax protesters routinely attempt to get the IRS to accept a smaller payment with this trick. What’s overlooked is the fine print—including the fact that there has to be a dispute, and both parties have to agree.

In the case of Kalil (T.C. Summary Opinion 2013-29), the taxpayer submitted a check for $552 for payment in full of tax obligations of more than $26,000. The IRS cashed the check—but that didn’t end the matter.

The court cited a case from 1929 (Botany Worsted Mills v. United States, 278 U.S. 282), which states “the statutes which authorize conclusive agreements and settlements to be made in particular ways and with the approval of designated officers raise the inference that adjustments or settlements made in other ways are not binding.”

In the Internal Revenue Code, sections 7121 and 7122 prescribe the exclusive means for effecting a settlement or compromise binding on both the taxpayer and the IRS commissioner—and neither of them mention a check notated “paid in full.”

If you’re wondering, those sections don’t mention kissing frogs either.

Taxing Lesson: If it sounds too good to be true, it’s probably not part of tax law.

***

Other posts you might enjoy

Decisions — Rejecting the boilerplate Image source: wpclipart.com   The whistleblower wanted a share of the $37.5 million the IRS collected. The IRS gave him boilerplate instead. In Kasper (150 T.C. No. 2), the taxpayer told the IRS that his former employer failed to pay overtime wages to employees and therefore didn't wi...
Decisions — Dueling rules Image source: wpclipart.com   En garde! When provisions in the internal revenue code appear to conflict, taxpayers and the IRS face off in court. Here are two cases from this week involving disputes over dueling code sections. 1. In Docket No. 2103-17S (Palsgaard), the dueling internal...
Decisions — The bagel business Image source: wpclipart.com   Unlike bagels, the deductions discussed in TC Memo. 2017-246 (Lender Management, LLC) have only two flavors: one the taxpayer prefers and one the IRS prefers. The taxpayer manages investments for heirs of a family fortune built on frozen bagels. During ta...
Decisions — Smoking the deductions Image source: ©Melinda Nagy Dreamstime Stock Photos   We're not lost. We just don't know where we are. Words that create a phantom distinction where no difference exists can make us laugh. Except of course when they involve tax law. In T.C. Memo. 2017-211 (Feinberg), the taxpayer w...
Tagged ,