In my last article Kappsized or Scuttled?!, I forwarded a client question which was, “Do I HAVE to file these amended returns?” regarding recent amended returns sent to former clients of Martin Kapp. I answered “no” with respect to the question. It has come to my attention that this may have been incorrectly interpreted. Treasury Regulations, specifically §1.451-1(a) state If a taxpayer ascertains that an item should have been included in gross income in a prior taxable year, he should, if within the period of limitation, file an amended return and pay any additional tax due. This is not an obligation (have, must), but a recommendation (should). Please be aware that not filing an amended return could result in the assessment of additional interest and penalties. Filing an amended return does not excuse you from interest and penalties either. Interest and penalties generally keep accruing until you pay the amount due.
Here’s the bottom line. You cannot deduct meals while onboard a vessel if meals are provided for you. If you took these deductions on prior returns, it was in error, either knowingly or unknowingly. The IRS is entitled to the difference between the original and amended tax due.
Making matters worse, I’m fearful of additional acts that could occur in the future. Generally speaking, there is a three year statute of limitations for the audit of income tax returns. Fraud is NOT subject to this statute. Fraud can be audited indefinitely. It has often been stated that for fraud to apply, it needs to be on the part of the taxpayer and not solely the preparer. THIS NO LONGER APPEARS TO BE THE CASE. A recently released tax court memorandum http://www.ustaxcourt.gov/InOpHistoric/vallen.TC.WPD.pdf held a taxpayer liable for fraud committed solely by the preparer with respect to the statute of limitations. The IRS was allowed to audit past the statute when only the preparer committed fraud. This suggests that the IRS could audit Mr. Kapp’s former clients for years past the current three year period. How far? From the point that the fraudulent positions were taken is my guess. This also suggests that the IRS could wait until you are collecting social security to audit those returns.
I hope this doesn’t happen. To my knowledge there haven’t been any public statements of position from the Service on this issue. The only sure thing is that time will tell…..
This article was written for gCaptain.com by James MacGuire, MaguireTaxes.com