Case: Taxpayers Found Liable for Unreported Income and Penalties (T.C. Memo)

The U.S. Tax Court affirmed the IRS’s determination that taxpayers failed to report income from an S corporation and were liable for accuracy-related penalties. Taxpayers, a married couple, owned 50 percent of an S corporation that performed construction work. The IRS determined that the S corporation had unreported income from bank deposits, diverted gross receipts, and unreported cash receipts. The court found that taxpayers failed to prove the unreported amounts were not income, rejecting arguments that certain deposits were loan repayments or that diverted receipts should be offset by unsubstantiated costs. The court also sustained accuracy-related penalties for substantial understatement ...