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ARE STATES EASIER TO BEAT IN TAX CASES THAN THE FEDS?

September 27, 2006

The "Peoples Tax Lawyer" poses the question - are state or federal courts easier game in tax cases? He tells of a Colorado case where the state attorneys just showed up unprepared, leading to an easy taxpayer victory in an employment tax case.

The result would have been the same under the federal rules, because the law is clear that the equivalent penalty at the federal level is only to be imposed on "responsible persons" (the Section 6672 trust fund recovery penalty is the equivalent penalty at the federal level).

What is different is that the IRS attorney would have at least be prepared to put on their case in court. I am not aware of a single case where the IRS attorney failed to prepare a trust fund recovery penalty case such that they put on no evidence of the taxpayer’s role in the corporation.

Not being a lawyer, I don't know the ins and outs of Iowa tax litigation. I have seen taxpayers win cases they probably should have lost, all the way up to the Iowa Supreme Court, the highest court in the land! At lower levels, though, the Iowa tax appeals process is a true cangaroo court, lacking only real marsupials. I have seen state tax agents overreach in ways unimaginable for the IRS.

Perhaps its worse for taxpayers in the states until you litigate; then maybe the odds tilt towards the taxpayers.

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