A few months ago, I read an article about a tax lawyer that argued his own case before the Tax Court and lost. He lost because he relied on an IRS publication as a basis for his tax argument. The judge reportedly laughed and said that the lawyer should know better than rely on IRS publications. I thought that very odd but maybe there were very unique circumstances here behind that story.
Read a great article on the Forbes website by Robert W. Wood who focuses on taxes and litigation.
The incident described in the first paragraph is apparently more common than you would think.
You would think that you could use IRS instructions as a defense when you are arguing your case before the IRS. However, Mr. Woods notes that IRS instructions and publications are actually not part of tax law. When taxpayers claim their tax position is justified by such documents, they often lose their case.
Apparently there is a long line of cases that says the “only authoritative sources of tax law are official statutes, regulations, and judicial decisions”. Woods states that sometimes you can cite form instructions but not always and he gives several examples of such cases. In each case, taxpayers cited IRS publications or instructions but lost.
Isn’t this amazing? We now live in a world where a tax error can cost you hundreds or thousands of dollars in interest and penalties but the IRS does not have to provide accurate instructions.
Why do these people get bonuses?