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When It Comes To Taxes, The
Courts Heard It All, The Tribulations Of Mobsters,
'Mad' Scientists, Others Have Tried The Patience Of A Few
(RIVERWOODS, ILL., March 22, 1999) About this
time of the year, millions of Americans are hunched over
their tax forms, trying to decide how daring they will be
on their federal tax returns. However, CCH
INCORPORATED, a leading provider of tax and business law
information, suggests before you begin rationalizing your
decisions, you consider some of the unusual defense
arguments and positions heard in the tax courts recently.
From mobsters to scientists, from untaxes to the IRS
itself, CCH offers its picks for winners of the
"1998 Nice Try" award.
- Who Says Crime Doesnt Pay? In J.
DiFronzo v. Commissioner of Internal Revenue,
it was the ruling, not the complaint, that seemed
unusual. The Court ruled in favor of a "crew
chief" in a Chicago organized crime family
who sought to deduct his legal defense fees
as an "ordinary" business
expense. His business was loan sharking,
bookmaking, extortion, illegal gambling,
trafficking in stolen property and fraud. The IRS
argued the letter of the law, saying the gangster
had merely conspired to set up a gambling
operation, and, therefore, only had an expectancy
of a future business for which expenses were not
deductible. Reprehensible criminal activity
aside, the court determined that his deduction
- An Apple a Day Failed to Keep the IRS Away: A
holistic dentist tried to convince the federal
government that his apple orchard and dentistry
practice were one partnership business for income
tax purposes. In T.F. and C.J. Zdun v.
Commissioner of Internal Revenue, the Court
found this a little hard to swallow and concluded
that the record was entirely bereft of any
evidence of an actual and honest profit objective
associated with the orchard. In fact, the
dentists description of his house nestled
among fragrant, flowering apple trees convinced
the Court that personal pleasure was the dominant
factor for the orchard. The dentist and his wife
were found liable for an accuracy-related
- Un-Believable: Individuals (United
States of America v. L. Clark, et. al.) who
operated an organization that sold
"untax" packages that claimed to teach
people how to remove themselves from the federal
tax system were found guilty of conspiring to
defraud the government. The group considered the
IRS "domestic enemy number one" and
planned to put the IRS out of business.
- Benefits of Big Family Backfire: While
children can confer many tax benefits on
families, some of those benefits can boomerang,
especially in the area of the alternative minimum
tax (AMT). In David R. and Margaret J.
Klaassen v. Commissioner, the couple had 10
children as dependents when they figured their
1994 federal tax, making for a total of 12
personal exemptions worth $29,400 on the return.
Taken into account with their itemized
deductions, the taxpayers return showed a
tax owed of $5,111.
The IRS, however, called the return into question,
saying the laws require everyone to pay an
alternative minimum tax (AMT) if it is higher than
their regular tax. The AMT adjustments reduced or
eliminated some deductions and threw out their
personal exemptions, which increased their taxes an
additional $1,085. In short, the taxpayers
problem with the AMT arose almost solely from the
size of their brood; if they had only had seven
children, the whole AMT issue would never have come
The taxpayers protested the IRS finding,
arguing that Congress never intended for the AMT to
apply in a circumstance such as this, and that the
law penalized them for bearing children and violated
their right to practice their religion. Unfortunately
for the king-sized family, the Tax Court ruled in
favor of the IRS. The Klaassens have since appealed.
- Dont Get Mad
Get Even: He
thought the IRS did him wrong, so a scientist
took it upon himself to even the score. In D.R.
Edmons v. Commissioner of Internal Revenue,
the Court determined that the scientist was not
allowed to claim a deduction for an IRA
contribution that he admitted he had not made.
The scientist took the deduction in an effort to
recoup taxes he believed the IRS improperly
collected from him in a previous year.
- All in the Family: The Court told a
taxpayer - who claimed
she was injured by the loss of benefits resulting
from the nonpayment of taxes by her father and
uncle - that she
didnt have a leg to stand on. An accountant
was not allowed to pursue a suit to compel the
IRS to investigate and collect taxes from her
father and uncle. Although she claimed to have
been injured by her relatives alleged
nonpayment, the court stated that her speculative
loss of benefits from those uncollected taxes
would have been shared with the entire population
of the United States and did not qualify as a
concrete injury. The case, J. Lichtman, CPA v.
United State of America, was dismissed.
- The court called I.R. Banks v. T.M.
Barrett a "blunderbuss:"
The suit sought to reopen a judgment and to order
the IRS to audit businesses the plaintiff
believed owed him money, to restore diamonds to
himself and his ancestors and to direct a member
of Congress to comply with his views on
members responsibilities to constituents.
According to the court, the suit was a waste of
everyones time and the defendants
About CCH INCORPORATED
CCH INCORPORATED, Riverwoods, Ill., was founded
in 1913 and has served four generations of tax
professionals and their clients. CCH is a wholly owned
subsidiary of Wolters Kluwer U.S. The CCH web site can be
accessed at www.cch.com.
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