The story of James J. Maggard has some interesting and possibly valuable lessons. The one that strikes me as particularly important is that it makes it crystal clear that disproportionate distributions contrary to a corporation’s governing documents will not blow its S election. That does not mean that disproportionate distributions are just fine and that you don’t need to address them. There is a practical lesson about being careful who you take on as fellow shareholders. And there is another slightly odd lesson, that almost makes me want to create a new law of tax planning: Don’t deliberately involve the IRS in your business disputes. Their job is not to help you.
Lessons Learned from the Tax Court: An Olive Branch in Tax Court
Matt Metras, EA
“Everything is deductible until the audit” is an adage frequently repeated in the tax preparation industry. Generally, it’s mentioned tongue-in-cheek, but today’s taxpayer (and her tax pro boyfriend) may have taken it a bit too literally. Additionally, cutting corners may seem like a time-saving strategy in the moment, but the potential to backfire can’t be ignored. In this case, the taxpayer is about to learn things the hard way.
