Court Opinion

ID: 9490019
Source: CourtListenerOpinion
Date Created: 2023-08-05 13:30:42.018969+00
Date Added: 2024-06-11T17:53:51.448718
License: Public Domain

REINHARDT, Circuit Judge,
concurring in part and dissenting in part:
I concur in all of Judge Coyle’s excellent opinion except for Section IIB. As to that part, I dissent because I believe the I.R.S. is guilty of improper piling on with respect to the penalties it imposed on Little.
I believe that Little satisfied the requirement that permits taxpayers to avoid an addition to tax penalty. To satisfy that requirement, “the tax return must at least provide sufficient information to enable the Commissioner to identify the controversy involved.” Reinke v. C.I.R., 46 F.3d 760, 765 (8th Cir.1995). The eases cited by the majority are not persuasive. Unlike in Little’s ease, an examination of the return filed by the taxpayer in Reinke would in no way have suggested to the I.R.S. that there was a possible controversy. By listing on the return under “capital gains” figures that included both ordinary income for damage to land and capital gains, Reinke did not in any way alert the I.R.S. to the possibility of a controversy. Similarly, in Accardo v. C.I.R., 942 F.2d 444 (7th Cir.1991), the taxpayer was relying on a “novel theory” for deducting legal fees and there was nothing on the face of the return that would have alerted the I.R.S. to a possible problem with the deduction. See also Schirmer v. C.I.R., 89 T.C. 277, 285, 1987 WL 43886 (1987) (holding taxpayers hable for addition to tax when there was no indication on the return that the farm in question was not being used for business as taxpayers claimed); Mauerman v. C.I.R., T.C. Memo 1993-23, 1993 WL 7561 (1993) (“Nothing in the record suggests that unexplained deductions ... would alert respondent to the significant possibility [of a potential] dispute.”). In this ease Little disclosed on his returns that he was claiming capital gains tax for the sale of approximately two-hundred houses in a three-year period. This should have alerted—and undoubtedly did alert—the I.R.S. to the fact that Little might be claiming capital gains improperly. The sheer volume of transactions indicated that in all likelihood he was selling homes professionally, and thus was receiving ordinary income. The government itself argues that the large number of transactions indicates that they are not appropriate for capital gains treatment.
In short, I do not think that there can be any doubt that Little disclosed the information necessary to avoid the addition to tax penalty. While the majority seems to be saying that Little should not only have disclosed the relevant facts, but should also have stated on the face of the return that there might be a problem with the way he treated the transactions, that is not what the Internal Revenue Code or the case law provides. In order to avoid the addition to tax penalty, the Code requires that the taxpayer adequately disclose facts within “the return or in a statement attached to the return.” 26 U.S.C.A. § 6661(b)(2)(B) (West 1989). The information must be enough “to enable the Commissioner to identify the controversy involved.” Reinke, 46 F.3d at 765 (emphasis added). The taxpayer need not add, “Hey guys, there’s a problem.” Because Little adequately disclosed the relevant facts on the face of the return, facts that were sufficient to allow the Commissioner to identify the *1456capital gains controversy, he should not have been assessed the addition to tax penalty. Accordingly, I dissent in part.