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Issuance of Erroneous Letter Does Not Bind the IRS


Posted on December 09, 2018

The taxpayer filed his federal Form 1040 tax return for 2005 listing a total tax liability of nearly $90,000.00.  The taxpayer then hired a different accountant who prepared and filed a federal Form 1040X, Amended U.S. Individual Income Tax Return, for 2005 reducing the original tax liability by nearly $67,000.00.  Although the taxpayer filed the amended tax return with the IRS a total of four times, the IRS rejected the amended tax return in writing three times.  However, the IRS issued one letter that stated “we have adjusted your account as you requested”, but the IRS never made any adjustments to the taxpayer’s account.  The IRS issued a Notice of Intent to Levy and Notice of your Right to Hearing, and the taxpayer timely filed a Protest with IRS Appeals.  The IRS did refer the taxpayer’s amended tax return for 2005 to the IRS Examination Division, and substantial adjustments were made.  However, the IRS did not fully accept the amended tax return for 2005.  The IRS then issued a Notice of Determination and the taxpayer brought suit against the IRS in the United States Tax Court.  The taxpayer argued that the IRS letter stating that “we have adjusted your account as you requested” bound the IRS to accept the amended tax return in its entirety.  However, even though the Court agreed that the IRS erroneously issued this letter, it stated that the IRS was not bound to accept the amended tax return filed by the taxpayer.  Further, although the taxpayer was afforded the opportunity to attack the underlying liability by presenting evidence of his income and expenses, he chose not to do so.  Accordingly, the Court held in favor of the IRS.  Do you owe money to the IRS?  Call us, we can help.


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