Huge Penalties For Unfiled Returns: This Is What Could Happen To You

In an appeal, the Ninth Circuit court recently reversed and remanded the Tax Court’s decision that taxpayers Ritchie Stevens and Julie Keene-Stevens did not owe deficiencies or penalties for multiple tax years, despite partnership losses on their legally invalid tax returns that were never filed. Following the overruled appeal, Mr. Stevens and Ms. Keene-Stevens were ordered through the Tax Court to pay deficiencies for those years.

Taxpayers Chose Not To File Specific ReturnS

For tax years 2009-2011, Mr. Stevens and Ms. Keene-Stevens reported no tax liability due to net operating losses in partnerships that were subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). Although tax return documents were completed, they were not signed or filed in 2007 and 2012 due to these losses.
The Tax Court determined that the taxpayers did not owe any deficiencies or penalties for 2009-2011 because the partnership losses that were claimed in those years exceeded the IRS’s adjusted non-partnership deficiencies guidelines.

Ninth Circuit Reverses Tax Court’s Determination

In an appeal, the Ninth Circuit reversed the Tax Court’s decision and indicated that these unsigned, unfiled tax returns were not legally valid because they had not been filed. Thus, they provided insufficient evidence of non-partnership income in deficiency proceedings. The Ninth Circuit ruled that Mr. Stevens and Ms. Keene-Stevens did owe deficiencies and penalties for these years despite the alleged partnership losses that were claimed on the invalid returns.
The judges of the Ninth Circuit indicated that the Tax Court erred because they could not regard any alleged partnership losses on invalid tax returns. They further indicated that the Tax Court lacked jurisdiction to enter declaratory judgments under I.R.C. §§ 6234(a)(3), (c). The Tax Court was ordered to calculate the taxpayers’ deficiencies without regard for any losses that may have occurred.
This case highlights the importance of accurate tax returns and the importance of filing even when there is no tax liability. Had the tax returns been signed and filed as required, the taxpayers may not have been responsible for the deficiencies and penalties that were awarded in the Ninth Circuit overruling.

Protect Yourself With Legal Advice From Arizona’s Trusted Tax Attorneys

If you’re facing an audit from the IRS, seeking representation for innocent spouse relief, have questions about foreign tax reporting, or need trusted legal advice for any other tax-related matter, schedule your consultation with the experienced attorneys at Silver Law, PLC. Our attorneys have over 100 years of collective experience working in tax law and are ready to fight aggressively for your rights and interests. Don’t try to face a tax dispute alone when you can obtain guidance and representation from the leading tax attorney firm in Arizona. Contact us today!

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