Assessment Related to Inconsistent Schedule K-1 Reporting Addressed

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The U.S. Tax Court rules that it has jurisdiction over issues related to a taxpayer's failure to report his income from an S corporation in which he owned shares in a manner consistent with the bank's reporting on its Schedule K-1, despite Internal Revenue Code provisions that treat such inconsistencies as math errors. Judge Goeke notes that, instead of summarily assessing the tax arising from the inconsistent reporting and issuing a notice of deficiency for the rest, IRS originally issued a single notice of deficiency for both the increases in tax due to inconsistent reporting and the much smaller increase in tax due to the taxpayer's failure to report income listed on some Forms 1099. The taxpayer's petition disputed the entire amount of the deficiency, and IRS summarily assessed the tax caused by the inconsistent reporting only after the jurisdiction issue was raised in the docketed case. “This raises the question [of] whether the failure of the IRS to summarily assess before the issuance of the notice of deficiency precludes our jurisdiction on the issue of the correct income from the S corporation,” Goeke says.

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