Best of TaxLetter: A Sad Story

Harold Curry (a truck driver) and Magdalene Curry (a secretary) together earned $25,000 a year. They started a part-time emergency flat tire service, on which they lost money. The accounting records were disorganized. They didn't file income tax returns. In 1979 they hired a CPA to prepare 1975 and 1976 returns.

The CPA greatly overstated gross receipts and showed $7,677 tax due for 1975 and $20,442 for 1976. One look, and the Currys immediately recognized the error. But the accountant told them to file the returns, because they were so late, without sending money and he would prepare amended returns to straighten it out. The amended returns showed refunds due for 1975 and 1976 totalling $8,400.

Upon receipt of the amended returns, IRS decided to audit. But the CPA had lost the accounting records. Without records, IRS did not approve the refund. And IRS argued that the Court lacked jurisdiction because the Currys hadn't paid the tax on the original return -- over $60,000 with penalties and interest.

A sympathetic, but unhelpful, Circuit Court ruled, "It is doubtful that there could have been enough flat tires in... Indiana...for them to make over $70,000...but the Currys have only themselves and their accountant to blame for their predicament...Possibly their congressman could help with a special relief bill, but any relief possibilities are beyond our reach." (No. 51)