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STATE REVENUERS AS BULLIES
August 12, 2008
One of the most infuriating things in tax practice is advising a client that even though the state's position on an issue is wrong, it will cost more to fight for the right result than the incorrectly-assessed taxes are worth. It's a rare client who will spend good money fighting for a principle.
That's why the decision ordering California to pay $137 million in damages to a Nevada electrical engineer is good news. Gilbert Hyatt moved from California to Nevada in October 1991. California tried to assess $49 million of additional taxes for 1991 and 1992 on Mr. Hyatt's earnings from a lucrative patent. The $137 million in damages are for "invasion of privacy and
emotional distress" arising out of the audit.
Russ Fox provides an excellent roundup of the case.
States are always happy to stick taxpayers with penalties for taking abusive positions. Turnabout is fair play. A few stiff penalties might make greedy state officials think twice before taking abusive positions that taxpayers can't afford to fight.
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Comments
Thanks for the post. It is frustrating when the state, with its vast resources, dares taxpayers to take it to court. The state should be in the business of getting things right, not increasing government revenue at all costs.
But the cost/benefit dilemma exists in all facets of our judicial system, not just in disputes with the taxing authorities. I have had several clients tell me they couldn't afford an attorney to defend themselves against a frivolous lawsuit and, consequently, defaulted and a judgment was entered against them.
Makes me wonder if we should convert to a loser pays system like the UK.
Peter
P.S. I voted TaxUpdate Blog as one the five best tax blogs in a post I published a few days ago. You can read it at http://blog.pappastax.com/index.php/2008/08/10/5-best-tax-nerd-blogs-the-first-annual-rick-moranis-awards/
Posted by: Peter | August 12, 2008 4:30 PM