Tom Copeland Wins Attorney's Fees in Tax Court Case
After I won a Tax Court case for family child care provider Maureen Speltz, the IRS has agreed to pay the agency I worked for $6,800 to settle our lawsuit for attorney's fees and costs to represent Mrs. Speltz.
Mrs. Speltz had hired her husband to help care for the day care children in the afternoon. She did not pay him a salary but instead set up a medical reimbursement plan under IRS Section 105. The IRS disallowed the deduction for the medical reimbursement plan and assessed her $2,000 in taxes. Tom Copeland represented Mrs. Speltz before the Tax Court and on February 14, 2006, the judge ruled in our favor.
Within 30 days I filed a motion for an award of $11,393 for reasonable litigation costs. Two weeks before the deadline to reply to my motion an IRS attorney contacted me to ask if I would settle the motion. The attorney offered to pay our actual costs (filing fees and court transcript copies) plus half of my time, for a total of $5,700. I counter offered $7,500 and they then proposed a final offer of $6,800, which I accepted.
The IRS attorney said that they did not dispute the number of hours I worked on the case (150) and said that their attorneys spent approximately 120 hours. The court opinion ruled that the burden of proof shifted to the IRS. This meant that they had to show that they took a reasonable position in arguing that Mr. Speltz did not spend time with the day care children, but rather conducted household chores unrelated to his wife's business.
In my motion I pointed out that before the Notice of Deficiency was issued in our case we had submitted a series of records indicating that Mr. Speltz did work with the day care children. These records included a contemporaneous calendar with daily notations of when Mr. Speltz worked, four letters from day care parents, and two letters from Mrs. Speltz to the auditor and hearing officer explaining the activities her husband performed. I believe that we had a strong motion and the willingness of the IRS to settle indicates that they probably felt they had a weak case.
In my discussions with the IRS attorney I complained about the failure of the original auditor and hearing examiner to closely examine the facts of our case. They took positions that were clearly invalid. They told us that a wife can't hire her husband, that a family child care provider can't set up a medical reimbursement plan, and that it didn't make any difference how many hours her husband helped her care for day care children. I asked what could be done to train auditors and hearing examiners to better understand the tax law, and family child care. Unfortunately, I have seen many other examples of auditors not applying the law accurately. I don't have an answer as to what can be done about this.
I want to thank CPA William Brown for providing me with valuable advice throughout the process of filing this motion.
Tom Copeland - www.tomcopelandblog.com
Image credit: https://www.charismanews.com/us/86015-irs-reverses-course-grants-tax-exempt-status-to-christian-nonprofit
