In the case of Jack R. Durland, Jr., et al. v. Commissioner, the United States Tax Court held that Mr. Durland committed fraud when he and his then-wife filed their federal Form 1040 tax returns for 1999, 2000 and 2001. The proposed increase in income for these years was in excess of $2,000,000.00.
When you file a tax return, the assessment statute of limitation begins to run. The assessment statute of limitation is the time period that the IRS can assess additional tax liability against you in addition to the tax liability you listed on your tax return when it was filed. The assessment statute of limitation is typically three years from the date you file your tax return.
Like any rule of law, there are exceptions to the typical three-year assessment statute of limitation. If there is a 25% or more gross omission from the income you reported on your tax return, the assessment statute of limitation expands to six years. If you committed fraud or intentionally evaded tax on your tax return when it is filed, the assessment statute of limitation never begins to run, meaning that the IRS can come after you at any time in the future.
In order for the IRS to uphold the proposed liability against Mr. Durland and his wife, they would have to demonstrate that the additional income for 1999, 2000 and 2001 was subject to the fraud penalty. Otherwise, the IRS would lose their case.
Mr. Durland previously worked as an attorney and was disbarred by the Supreme Court of Oklahoma for basically stealing money from a trust and lying about it. Mr. Durland was subsequently prosecuted by the U.S. Attorney and a plea agreement was subsequently entered. The United States Tax Court ultimately ruled in favor of the IRS, holding Mr. Durland liable for not only the tax due on the unreported income but also for the fraud penalty itself.
The IRS also held Mr. Durland’s wife jointly and severally liable for the additional tax liability in ruling that she was not eligible for Innocent Spouse Relief.
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