Yesterday, the U.S. Tax Court issued an extremely important decision that will offer taxpayers under audit by the IRS a new argument to make if the report that an IRS revenue agent sends the taxpayer includes IRS proposed penalties for negligence, fraud, or substantial understatement.
In the case, entitled Clay v. Commissioner, the Tax Court held that it if the IRS wishes to include penalties at the conclusion of an IRS audit of a taxpayer, then the IRS agent’s supervisor must approve the penalties in writing prior to the issuance of the Revenue Agent Report (RAR) in connection with the issuance of an IRS 30-Day Letter that gives the taxpayer the right to appeal the proposed adjustments to the IRS Appeals Office, if the RAR includes proposed penalties in addition to proposed additions to tax.
To read the Clay case, click here.