Academic journal article Journal of Accountancy

Equal Treatment for All Taxpayers

Academic journal article Journal of Accountancy

Equal Treatment for All Taxpayers

Article excerpt

The Tax Court reversed its prior decision in a "retail tax shelter" case, granting further relief from assessments to approximately 400 taxpayers. It did so because the IRS secretly--and fraudulently--entered into more favorable settlements with some test case litigants before the test cases were decided. The action marked a reversal of the court's 2005 ruling in Lewis v. Commissioner (TC Memo 2005-205), which had denied relief.

The ruling in Hartman v. Commissioner (TC Memo 2008-124) said the stipulations the 400 taxpayers entered into were less favorable than settlements the IRS gave to other similarly situated taxpayers. The court said the IRS's secret settlements with test case taxpayers constituted a fraud on the court, and the relief to the taxpayers was an appropriate punishment against the tax collector. The court ordered that all taxpayers whose cases were bound to the test cases should receive the benefit of the more favorable pretrial settlement by having their accounts adjusted within nine months after the ruling.

The cases go back to the 1980s, when hundreds of taxpayers took advantage of a shelter offered by Henry Kersting. The IPS set up test cases to litigate the schemes, and all similarly situated taxpayers who so agreed were supposed to be bound by the outcomes of those cases. …

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