Page 173 - JoFA_Jan_Apr23

gross income under Sec. 6020(b). The in its calculation of the additional the IRS “need only be reasonable
Service determined that Showalter unreported income. in light of all surrounding facts and
received income of $367,977 during In 2022, the IRS moved for partial circumstances,” the Tax Court stated,
2013, which consisted of $367,103 of summary judgment by the Tax Court. citing Petzoldt.
business income from RECS, $833 Issues: If a taxpayer does not keep The Tax Court further stated that
of gambling winnings, and $41 of accurate books and records establish- the bank deposits analysis presumes
interest. ing gross income, the IRS may de- that any money placed in a taxpayer’s
The IRS calculated a resulting termine it under a prescribed method bank account is taxable income
income tax liability of $122,857, plus that clearly reflects income (Sec. unless the taxpayer proves otherwise.
additions to tax for failure to file and 446(b); Petzoldt, 92 T.C. 661 (1989)). According to the court, nontaxable
pay, plus estimated tax penalties. One such method is a bank deposits income may come in the form of
analysis. In reconstructing income, interaccount transfers; returned

LINE

ITEMS

For these full stories plus the latest tax news, visit
journalofaccountancy.com and thetaxadviser.com.
Final regs. expand company e-filing requirements
Effective for tax years after 2023, more business taxpayers face a reduced
threshold of number of returns that subject them to mandatory e-filing,
In 2019, after petitioning the covering a wider range of types of returns.
Tax Court for a redetermination,
Showalter and the IRS stipulated to AICPA recommends 12 digital asset FAQs for IRS to post online
the amount of unreported income in The suggested frequently asked questions would define key terms relat-
the deficiency notice, including the ing to the query on the front of Form 1040, U.S. Individual Income Tax
$367,103 of business income received Return, and in its instructions, including “digital representation of value”
by RECS, which consisted of two and “characteristics of a digital asset,” and make other clarifications.
payments reported on Form 1099-
MISC, Miscellaneous Income. After Taxpayers can now submit information online in response
the government subpoenaed RECS’s to 9 IRS notices
bank records, the parties further The IRS’s new secure electronic upload option is intended to help more
stipulated that Showalter was entitled than 500,000 taxpayers annually resolve their tax issues more quickly,
to $199,958 of business deductions without having to mail the information to the Service.
and $50,652 of itemized deductions.
Showalter conceded any tax liability AICPA makes 61 proposals to Congress for changes to the
related to self-employment income Internal Revenue Code
from RECS and the additions to tax. Its recommendations for standard definitions of key terms, simplifying
However, after using a bank and coordinating provisions, and technical fixes would make the Code
deposits analysis to examine the total fairer and more easily administered, the AICPA’s Tax Executive Commit-
deposits in RECS’s bank account, tee said.
the IRS determined that Showalter
had additional unreported business Taxpayers can exclude certain 2022 state payments from
income of $102,885, which became federal returns
the only remaining point of conten- Some state general welfare or disaster relief payments or refunds do not
tion between the parties. Showalter need to be reported on 2022 returns, the IRS advised, providing a listing
contended that the IRS failed to ex- of covered payments.
clude a nontaxable deposit of $95,002
related to a real estate transaction

journalofaccountancy.com April 2023 | 35