Accounting Question

this is what i did  , but im missing the last part “Summary of position”

APPENDIX 22B

Sample Appeal Protest Letter

Source of this page is RIA checkpoint

April 7th, 2024

Internal Revenue Service

Federal Building

1100 Commerce Street

Dallas, Texas 75242

RE: Protest by Robert Richards

Social Security Number

Dear Mr. Richards:

I, Robert Richards, hereby protest the proposed adjustments income tax liability set forth in your 30-day letter dated August 15, 2021, and the examination report transmitted therewith. The following information is submitted in support of this protest:

Conference

The Estate wants to appeal the findings to the Estate Tax Attorney and requests a hearing before the Appeals Office.

Name, address, and daytime telephone number of the taxpayer:

Robert Richards, 1234 West 80th Road, Miami, Florida 33133

C/O Tax Firm 6, 1061 SW 70th Street, Miami, Florida 33133 (305) 123-5678

Oct 15, 2021

Reply Refer to: 1484-6423

FYE 201812

Form 1040

Return filed April 15, 2020

Itemized schedule of unagreed adjustments:

Period End: 201912

Form 4549-E, total unagreed adjustment due $45,381, which includes:

Additional Taxes due – $36,418

Penalties – $7,284

Interest – $1,679

Statement of facts.

1. Robert Richards wholly owned company “Robert’s Rules, Inc.” Robert received his primary income from salary and distributions paid by Robert’s Rulers, an S corporation.

Robert’s Rulers, Inc. had severe cash flow problems for some time and had fallen behind in paying suppliers for products that it used in its business.

Inch by Inch, Inc. was Robert’s Rulers, Inc.’s most important supplier, as they provided the primary component in its products. Inch by Inch had informed Robert that future product sales would be withheld unless prior invoices were settled and threatened to force Robert’s Rulers, Inc. into bankruptcy.

To avoid further damage to the business, Robert paid Inch by Inch individually, settling Robert’s Rulers, Inc.’s debt.  Unfortunately, despite Robert’s efforts to save the company, Robert’s Rulers, Inc. went out of business at the end of the year. Therefore, Robert claimed the business bad debt for personally paying the debt to Inch by Inch. on his form 1040 for 2019.

Statement of law.

According to section IRC §166, taxpayers can deduct debts that become worthless during the taxable year, distinguishing between business and nonbusiness bad debts. IRC §166(b) allows for a deduction based on the adjusted basis used to determine the loss from the sale. According to IRC §166(d)(2), a debt is classified as a non-business bad debt if it was created or acquired in association with a taxpayer’s trade or business or if it resulted from a loss incurred in the taxpayer’s trade or business and has become entirely worthless.

Moreover, under case Andrew v. Commissioner, 54 T.C. 239, 244-245 (1970), for a taxpayer to claim a deduction for a worthless debt, they must demonstrate that both they and their alleged debtor intended to establish a debtor-creditor relationship, a legitimate debt existed, and that the debt became worthless within the tax year. In addition, Aston v. Commissioner, 109 T.C. 400, 415 (1997) established that the year a debt becomes worthless is determined by identifiable events that provide reasonable grounds for giving up any hope of recovery. It is important to note that a business that is experiencing a decline, has failed to generate profit, or may have difficulty collecting its debt does not automatically mean that the debt obligation should be considered worthless following the case of Intergraph Corp. & Subs. v. Commissioner, 106 T.C. 312, 323 (1996).

1. Under IRC sec §6662, a penalty may be imposed if the amount of tax underpaid is greater than 10% of the tax amounts that should have been or $5,000, due to disregard of the regulations or substantial understatement of income tax. However, if the taxpayer can demonstrate reasonable cause and acted in good faith, they may avoid penalty liability for underpayment as per IRC sec §6664(c)(1). Following Income Tax Regs sec. 1.6664-4(b)(1) reasonable cause and good faith are evaluated on a case-by-case basis, taking into account all relevant facts and circumstances.

Summary of position.

even if the IRS was successful in finding that the payment was not a business bad debt, no accuracy related penalty should be assessed because you feel that your client had reasonable cause for the position taken on his 2019 tax return.

Form 4549-E
(Rev. 12-2004)
Department of the Treasury-Internal Revenue Service
Income Tax Discrepancy Adjustments
Name and Address of Taxpayer
Robert Richards
1234 West 80th Road
Miami, FL 33133
SS or EI Number
1. Adjustments to Income
201912
1
of
2
Return Form No.:
333-44-5555
Person with whom
examination
changes were
discussed.
Period End
Page
1040
Name and Title:
Alejandro Menendez, CPA
POA
Period End
Period End
243,950.00
a. Business Bad Debt
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
2. Total Adjustments
3. Taxable Income Per Return or as Previously Adjusted
243,950.00
4. Corrected Taxable Income
Tax Method
Filing Status
5. Tax
348,000.00
104,050.00
93,290.00
6. Additional Taxes / Alternative Minimum Tax
7. Corrected Tax Liability
8. Less
93,290.00
a.
b.
c.
d.
Credits
93,290.00
9. Balance (Line 7 less total of Lines 8a thru 8d)
10. Plus
Other
Taxes
a.
b.
c.
d.
11. Total Corrected Tax Liability (Line 9 plus Lines 10a thru 10d)
93,290.00
12. Total Tax Shown on Return or as Previously Adjusted
56,872.00
13. Adjustments to: a. Special Fuels Credit
b.
c.
14. Deficiency-Increase in Tax or (Overassessment Decrease in Tax)
(Line 11 less 12 adjusted by 13a thru 13c)
36,418.00
15. Adjustments to Prepayment Credits
16. Balance Due or (Overpayment) (Line 14 adjusted by Line 15) (Excluding
interest and penalties)
36,418.00
The Internal Revenue Service has agreements with state tax agencies under which information about federal tax, including increases or decreases, is
exchanged with the states. If this change affects the amount of your state income tax, you should amend your state return by filing the necessary
forms.
You may be subject to backup withholding if you underreport your interest, dividend, or patronage dividend, or patronage dividend income you earned
and do not pay the required tax. The IRS may order backup withholding (withholding of a percentage of your dividend and/or interest payments) if the
tax remains unpaid after it has been assessed and four notices have been issued to you over a 120-day period.
Catalog Number 13383E
publish.no.irs.gov
Form 4549-E
Form 4549-E
(Rev. 12-2004)
Department of the Treasury-Internal Revenue Service
Income Tax Discrepancy Adjustments
Name and Address of Taxpayer
Robert Richards
1234 West 80th Road
Miami, FL 33133
2
of
SS or EI Number
Return Form No.:
333-44-5555
1040
Person with whom
examination
changes were
discussed.
Period End
17. Penalties
Page
Name and Title:
Alejandro Menendez, CPA
CPA
201912
a. 6662(b)(2) Substantial Understatement of Tax
2
Period End
Period End
7,284.00
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
18. Total Penalties
7,284.00
Underreporter attributable to negligence: (1981 – 1987) A tax addition of
50 percent of the interest due on underpayment will accrue until paid or
assessment.
Underreporter attributable to fraud:: (1981 – 1987)
A tax addition of 50 percent of the interest due on underpayment
will accrue until paid or assessed.
Underreporter attributable to Tax Motivated Transactions TMT interest
will accrue and be assessed at 120% of underpayment rate in
accordance with IRC 6621(c)
19. Summary of Taxes, Penalties and Interest:
a. Balance due or Overpayment Taxes – Line 16, Page 1
b. Penalties (Line 18, Page 2) – computed to
c. Interest (IRC § 6601) – computed to 12/31/2019
d. TMT Interest – computed
on TMT underpayment
e. Amount due or refund (sum of Lines a, b, c and d)
36,418.00
7,284.00
1,679.00
0.00
45,381.00
Other Information:
Examiner’s Signature:
Employee ID:
Office:
Date:
Cambridge Williams III, IRA
1234568
Miami
09/15/2021
Consent to Assessment and Collection- I do not wish to exercise my appeal rights with the Internal Revenue Service or to contest in the United States
Tax Court the findings in this report. Therefore, I give my consent to the immediate assessment and collection of any increase in tax and penalties, and
accept any decrease in tax and penalties shown above, plus additional interest as provided by law. It is understood that this report is subject to
acceptance by the Area Director, Area Manager or Director of Field Operations.
PLEASE NOTE: If a joint return was filed. BOTH taxpayers must sign
Signature of Taxpayer
By:
Catalog Number 13383E
Date:
Signature of Taxpayer
Date:
Title:
Date:
publish.no.irs.gov
Form 4549-E
Internal Revenue
Service Date:
August 15: 2021
Robert Richards
1234 West 80″‘ Real
Miami, FL 33131
Department of the Treasury
Taxpayer Identification Number: 333-445555 Form: 1040
Person to Contact: Williams
Contact Telephone Number: ——————–
Employee Identification Number.
Last Date to Respond to This Letter September 15, 2021
Tax Year Ended: 201912
We have enclosed an examination report showing proposed changes to your tax for the period(s) shown above.
Please read the report and tell us whether you agree or disagree with the changes by the date shown above. (This
report may not reflect the results of later examinations of partnerships, “S” Corporations, trusts, etc., in which you
may have an interest. Changes to those accounts could also affect your tax).
If you agree with the proposed changes
1. Sign and date the enclosed agreement form. If you filed a joint return, both taxpayers must sign the form.
2. Return the signed agreement form to us.
3. Enclose payment for the tax, interest, and penalties due. Make your check or money order payable to the
United States Treasury. You can call the person identified above to determine the total amount due as of
the date you intend to make payment.
4. After we receive your signed agreement form we will close the case.
If you pay the full amount due now, you will limit the amount of interest and penalties charged to your account If you
agree with our findings, but can only pay part of the bill: please call the person identified above to discuss different
payment options. You can write to us or visit your nearest IRS office to explain the circumstances. We may ask you
to complete a collection information statement to determine your payment options, such as paying in installments.
You can also write to us or visit your nearest IRS office to explain your circumstances. If you do not enclose payment
for the additional tax: interest: and any penalties, we will bill you for the unpaid amounts._
If you area “C” Corporation: Section 6621© of the Internal Revenue Code provides that that an interest rate 2%
higher than the standard rate of interest will be charged on deficiencies of $100,000 or more.
IF YOU DO NOT AGREE with the proposed changes ….
1. You may request a meeting or telephone conference with the supervisor of the person identified in the
heading of this letter. If you still do not agree after the meeting or telephone conference, you can:
2. Request a conference with our Appeals Office. If the total proposed change to tax is:
◼
$25,000 or less for each tax period, send us a letter requesting consideration by Appeals. Indicate
the issues you do not agree with and the reasons why you do not agree. If you do not want to write a separate
letter, you can complete the Statement of Disputed Issues at lie end of this letter and return It to us.
TAX 6065 RX4 1208 FALL 2021
TEAM ASSIGNMENT 3
REVENUE AGENTS UNAGREED REPORT
EXPLANATION OF ADJUSTMENT
The amount paid on a debt of a corporation which taxpayer owns is not deductible as a business bad
debt.
Deductions are a matter of legislative grace COMM. v. TELLIER, Cite as 17 AFTR 2d 633 (86 S. Ct. 1118),
Code Sec(s) 162, (S Ct), 03/24/1966.
The taxpayer has failed to demonstrate that taxpayer is entitled to deduct the payment as a business
expense. It is well settled that merely paying a debt of a corporation that one has invested in does not
make a payment of a corporate debt a business bad debt.
Taxpayer has claimed a business bad debt for amounts paid to satisfy a loan of his wholly owned
company of which he is also an employee. Taxpayer indicates that the payment should be an ordinary
and necessary business expense, and therefore, deductible. However, the taxpayer is not in the
business of making loans. Furthermore, the taxpayer was not personally liable on the debt and,
therefore, had no obligation to pay it. The fact that the debt was to the company’s major supplier is
not relevant.
In the year of payment, the noncorporate guarantor, endorser, or indemnitor of a noncorporate
obligation may deduct the loss sustained upon his/her payment of the obligation as a business bad
debt, provided he/she can establish that (a) the agreement to guarantee such debt was entered into in
the course of the guarantee’s trade or business; and (b) the borrower’s obligation to the person to
whom the payment was made was worthless at the time of payment. Since your loss did not reflect
these circumstances, we have disallowed it. The taxpayer is in the trade or business of being an
employee PUTOMA CORP., ET AL. v. COMM., Cite as 44 AFTR 2d 79-5576 (601 F.2d 734), Code Sec(s)
461; 61, (CA5), 08/27/1979 and not in the business of making loans. The taxpayer’s dominant motive
for making the loan was to protect taxpayer’s investment in the corporation. Thus, there was no
proximate relation between the loan and taxpayer’s trade or business of being an employee.
Therefore, taxpayer is not entitled to the business bad debt deduction, and his losses are capital
losses (PUTOMA).
TAX 6065
TEAM ASSIGNMENT 3
WRITING A PROTEST LETTER
Protest and Written Submissions to Appeals Division: If an IRS examination is not resolved
within the Examination Division, a thirty-day letter will be issued to set forth the proposed
adjustments. The taxpayer has the right to request an administrative appeal to the Appeals
Division of IRS within thirty days of the date of the receipt of Letter 525, general 30 day letter
(“Protest letter”). During the Appeals process, the Appeals Division may request further factual
and legal submissions.
Assignment: Draft a Protest Letter (See attachments including IRS Publication 5
attached). The general requirements in the preparation and submission of a protest letter
are also attached.
FACTS:
Your client Robert Richards’ 2019 form 1040 was examined by Internal Revenue Agent
Williams. The only adjustment made was related to Robert having claimed a business bad debt
deduction for a debt of his wholly owned company, “Robert’s Rulers, Inc.
Robert is an employee of Robert’s Rulers, Inc. (an S Corporation). In fact, the salary and
distributions that Robert’s Rulers, Inc. pays to him are his primary source of income.
Robert’s Rulers, Inc. has had severe cash flow problems for some time and has fallen behind on
paying suppliers of products that Robert’s Rulers, Inc. uses in its business.
Inch by Inch, Inc., is Robert’s Rulers, Inc.’s most important supplier. Inch by Inch’s president,
Michael Meter has called Robert and told him that, unless prior invoices were paid, Inch by Inch
would not sell any additional products to Robert’s Rulers, Inc. This would be an unmitigated
disaster as Inch by Inch’s provides the primary component in Robert’s Rulers, Inc.’s products. Not
only that but Michael Meter has threatened to force Robert’s Rulers, Inc. into bankruptcy. Not
only would this result in the likely demise of Robert’s Rulers, Inc. but it would also destroy
Robert’s business reputation and basically ruin him.
In order to prevent this, Robert paid Robert’s Rulers, Inc.’s debt to Inch by Inch
individually. Unfortunately, this did not save Robert’s Rulers, Inc. which went out of business at
the end of the year anyway. On his form 1040 for 2019 Robert claimed the business bad debt for
personally paying the debt to Inch by Inch.
You have explained all this to the Revenue Agent Williams but to no avail. At the end of his
examination, Williams issues a form 4549 (see attached 4549).
You discussed the issue with Robert and you both do not agree with the revenue agent’s
adjustment. You mention the possibility of taking the matter to the Appeals division of the IRS.
Robert agrees to let you represent him before Appeals.
You have told Robert that you are required to prepare and submit a Protest Letter requesting a
conference with the Appeals division. You have a template (attached) that the manager of the
CPA firm you work for has provided to you to assist in properly structuring the protest letter.
Likewise, your manager provided you with a sample protest letter (attached).
You advised Revenue Agent Williams that the taxpayer does not agree with the adjustment. RA
Williams writes the case up unagreed and assesses the Accuracy Related Penalty on top of the
deficiency for the disallowed item.
In addition, even if the IRS was successful in finding that the payment was not a business bad debt,
no accuracy related penalty should be assessed because you feel that your client had reasonable
cause for the position taken on his 2019 tax return. Your protest letter will address these two
issues. Please note, Robert’s 2019 income tax return did not have a form 8275 Disclosure
Statement attached.
You need some direction in doing your research so that you can properly describe why Robert
should be entitled to the deduction. Your manager suggested that you research the topic of
business bad debt, job preservation, and perhaps other searches, In order to determine the position
you will take in your protest letter. You should also determine if Robert has reasonable cause as
a defense for the accuracy related penalty. Your manager has also suggested that you consult the
Internal Revenue Manual (IRM) as she feels that if there was something helpful on point it would
be very powerful in making your case. You understand that a protest doesn’t mean that you will
win in Appeals. However, Robert wants you to appeal so you begin the job.
The following documents are attached:
1.
2.
3.
4.
5.
6.
From 4549-E Income Tax Discrepancy Adjustments.
Form 915 Letter 915 – Letter to Transmit Examination Report.
Explanation of proposed adjustment prepared by the Revenue Agent.
Preparing a written Protest Letter to the Appeals Office.
Appendix 22B Sample Protest Letter.
Publication 5, “Your Appeal Rights and How to Prepare a Protest If You Do Not Agree.”
You may use the information from item 3 above in lieu of the “How to Prepare” section
of Publication 5.
Internal Revenue Service Date: August 15 2021
Robert Richards
1234 West 80″‘ Real
Miami, FL 33131
:
Department of the Treasury
Taxpayer Identification Number: 333-44-5555
Form: 1040
Person to Contact: Williams
Contact Telephone Number:
Last Date to Respond to This Letter September 15, 2021
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If you agree with the proposed changes
1.
Sign and date the enclosed agreement form. If you filed a joint return, both taxpayers must sign the form.
2.
Return the signed agreement form to us.
3.
Enclose payment for the tax, interest, and penalties due. Make your check or money order payable to the United
States Treasury. You can call the person identified above to determine the total amount due as of the date you
intend to make payment.
4. After we receive your signed agreement form we will close the case.
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IF YOU DO NOT AGREE with the proposed changes ….
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Request a conference with our Appeals Office. If the total proposed change to tax is:
$25,000 or less for each tax period, send us a letter requesting consideration by Appeals. Indicate the issues you do
not agree with and the reasons why you do not agree. If you do not want to write a separate letter, you can complete
the Statement of Disputed Issues at lie end of this letter and return It to us.
TAX 6065 RX4 1208 FALL 2021
TEAM ASSIGNMENT 3
REVENUE AGENTS UNAGREED REPORT
EXPLANATION OF ADJUSTMENT
The amount paid on a debt of a corporation which the taxpayer owns is not deductible as a business
bad debt.
Deductions are a matter of legislative grace COMM. v. TELLIER, Cite as 17 AFTR 2d 633 (86 S. Ct. 1118),
Code Sec(s) 162, (S Ct), 03/24/1966.
The taxpayer has failed to demonstrate that the taxpayer is entitled to deduct the payment as a
business expense. It is well settled that merely paying a debt of a corporation that one has invested in
does not make a payment of a corporate debt a business bad debt.
Taxpayer has claimed a business bad debt for amounts paid to satisfy a loan of his wholly owned
company of which he is also an employee. Taxpayer indicates that the payment should be an ordinary
and necessary business expense, and therefore, deductible. However, the taxpayer is not in the
business of making loans. Furthermore, the taxpayer was not personally liable on the debt and,
therefore, had no obligation to pay it. The fact that the debt was to the company’s major supplier is
not relevant.
In the year of payment, the non corporate guarantor, endorser, or indemnitor of a noncorporate
obligation may deduct the loss sustained upon his/her payment of the obligation as a business bad
debt, provided he/she can establish that (a) the agreement to guarantee such debt was entered into in
the course of the guarantee’s trade or business; and (b) the borrower’s obligation to the person to
whom the payment was made was worthless at the time of payment. Since your loss did not reflect
these circumstances, we have disallowed it. The taxpayer is in the trade or business of being an
employee PUTOMA CORP., ET AL. v. COMM., Cite as 44 AFTR 2d 79-5576 (601 F.2d 734), Code Sec(s)
461; 61, (CA5), 08/27/1979 and not in the business of making loans. The taxpayer’s dominant motive
for making the loan was to protect the taxpayer’s investment in the corporation. Thus, there was no
proximate relation between the loan and taxpayer’s trade or business of being an employee.
Therefore, taxpayer is not entitled to the business bad debt deduction, and his losses are capital
losses (PUTOMA).
Preparing a Written Protest to the Appeals Office
Source of this page is RIA checkpoint
Generally, an appeal is initiated by filing a written protest stating the reasons why the taxpayer does not
agree with the disputed adjustments. If the total amount of tax exceeds $25,000, a formal protest is required.
The outline of a sample formal protest disagreeing with a proposed estate tax adjustment is as follows. See
Appendix 22B for a complete sample protest.
RE: Protest by Robert Richards
Social Security Number
Dear Mr. Richards:
I, Robert Richards, hereby protest the proposed adjustments income tax liability set forth in your 30-day
letter dated August 15, 2021, and the examination report transmitted therewith. The following information
is submitted in support of this protest.
1. Conference.
The Estate wants to appeal the findings to the Estate Tax Attorney and requests a hearing before the
Appeals Office.
2.
Name, address and daytime telephone number of the taxpayer.
[Name and address of taxpayer]
[care of with name and address of attorney or accountant] [Telephone number]
Oct 15, 2021
Reply Refer to: 1484-6423
FYE 201812
Form 1040
Return filed April 15, 2020
3.
Itemized schedule of unagreed adjustments.
4.
Statement of facts.
5.
Statement of law.
6.
Summary of position.
Under penalties of perjury, I declare that I examined the facts stated in this protest, including any
accompanying documents, and, to the best of my knowledge and belief, they are true, correct, and
complete.
[Alternatively, or additionally, the attorney or accountant may sign the protest using the following language:]
This protest was prepared by the undersigned. The undersigned does (or does not) know personally
whether the statements of fact contained in the protest [and any accompanying documents] are true and
correct.