Challenge to IRS Notice of Deficiency for Unreported Rental Property Sale
The IRS issued a Notice of Deficiency asserting that the taxpayer failed to report the sale of two rental properties and proposed increasing taxable income by $555,000 as ordinary income, resulting in an additional tax assessment of $190,737.19, plus failure-to-file and substantial tax understatement penalties, totaling $238,245.
We filed a petition in the U.S. Tax Court and presented legal arguments and supporting documentation establishing the taxpayer’s adjusted basis in the rental properties. We further argued that the gain was capital in nature, not ordinary income.
Result: The proposed additional tax and penalties were reduced from $238,245 to $67,836, saving the taxpayer $170,409, plus interest thereon!
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