Tax Court in Brief | Gianninis v. Commissioner | Frivolous Arguments and Reporting Taxable Wages

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The Tax Court in Brief – June 20th – June 24th, 2022

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Tax Litigation:  The Week of June 20th, 2022, through June 24th, 2022

Gianninis v Commissioner, T.C. Memo. 2022-65 | June 23, 2022 | Urda, J.| Dkt. No. 20132-19

Short Summary: This case involves the disputed liability for (1) frivolous arguments, (2) the imposition of accuracy-related penalties on underpayments, and (3) penalties for untimely filing tax returns. Louis U. Giannini and Dawn M. Giannini untimely filed their federal income tax return for 2017. On their tax return, Gianninis only reported the wage income Mr. Giannini received. The Gianninis did not report (1) any compensation regarding Mrs. Giannini’s job, (2) the state income tax refund she received from Wisconsin, or (3) interest income paid by their Bank. The IRS informed them their failure to report such income. The Gianninis acknowledged their failure to report the refund and the interest, but they argued the income received by Mrs. Giannini was not taxable as she was a private sector employee. The IRS issued a notice of deficiency (IRS CP3219A Notice) regarding her unreported wage income, and their failure to timely submit their tax return in 2017. And, the IRS assessed an accuracy-related penalty under Section 6662(a) of $5,795. The Tax Court determined Gianninis’ arguments regarding the nature of the income earned by private-sector employees as not taxable and not timely filing their tax return based on such arguments as groundless and frivolous. The Tax Court sustained the IRS deficiency determination. However, based on the Gianninis’ changed position, the Tax Court determined not to assess a penalty to them for pursuing frivolous or groundless under section 6673(a)(1) at this time.

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Insights:  This case is another example of failing to demonstrate IRS erred in its determination based on frivolous arguments, such as considering private sector employees wages are not taxable income. Additionally, this case helps to warn the taxpayers not pursuing a frivolous position, as this may considerably augment their tax liability and assessment of penalties. For additional information, see Freeman Law:

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