Defending Two Claim for Refund Cases

At TaxAudit, we exist to help people, and we demonstrate our core value of caring for people in how we do our work. This story is an example of how each time we work a case we treat it as if it were our own. 

This year I was assigned two large "claim for refund" cases. A claim for refund case is approached differently than the audits we typically handle for our clients. When a taxpayer’s claim for refund has been disallowed, the only option to appeal is through the district claims court. Challenging a disallowed refund claim in court can be very expensive, and it is beyond the scope of our membership agreement.  For this reason, the stakes are high when we work these cases, and we feel quite a bit of pressure to win on behalf of our members. 

The first claim was for a refund of $53,221 for the member’s 2016 tax return. The claim was sent to field examination on 1/16/2020 and assigned to a Revenue Agent who was very aggressive and challenged the claim in full. My job was to defend the member’s “outside basis.” In a partnership, “outside basis” is the partner’s investment or interest in the partnership for tax purposes. 

The questions about our member’s outside basis had to do with some San Francisco apartments he had contributed to the business and refinanced in 2016. The Revenue Agent’s questions concerned the personal note and promissory note that our member had signed as operations manager for the partnership. To defend the claim, I consulted with our research team about citing Section 752 which allows partnership liabilities to be added to outside basis. The research team put together a great summary of the rule and how it applied in the case, and I used it in our member’s defense.  

We argued that since our member was the guarantor of the note, all the liabilities would be his if the loan defaulted. After eight months of reviewing documents and having disagreements over different aspects of the case, the revenue agent had to consider the hazards of litigation if his decision were to be challenged in district court. On 7/21/2020 he notified us of his decision to allow the claim in full.  

The member’s second claim for refund was $14,355 for the 2018 tax year. This claim was also sent back to be audited by the field examination unit on 2/12/2020. When I first got the case, the member said he wanted to withdraw the claim and did not want to go through with the audit. I told him that the worst thing that could happen would be that they would disallow the claim, or he could end up owing additional taxes since the Revenue Agent was looking at all schedules in the tax return. It turned out that once the audit was complete the taxpayer was allowed a partial claim of $8,327.00, which was gladly accepted. 

At TaxAudit, we care about people. As these cases demonstrate, we use the full force of our firm’s collective expertise to defend our members and to ensure they pay no more tax than they rightfully owe.