Bringing a Taxing Conflict with the IRS to a Successful Close

THE CHALLENGE:

When Daniel Green hit his head and injured his spine in a bicycle accident in 2010, it left him paralyzed from the shoulders down and altered the course of his life.

With the support of his wife, Maura, and their two children, he received therapy to regain the ability to speak and swallow food—but as a high-level quadriplegic, he was no longer able to live independently. Maura left her job to become his full-time caretaker, and to accommodate Daniel’s medical needs, including his use of a wheelchair, the Greens had to make significant modifications to their home.

Between medical care and the necessary home renovations, the Greens faced significant expenses stemming from Daniel’s accident, but they were conservative in claiming deductions related to those expenses on their Federal income tax return for 2010.

In late 2013, after corresponding with the IRS at length, the Greens received a Notice of Deficiency that disallowed all of their claimed medical expense deductions. As a result, the IRS determined that the Greens owed more than $35,500 in taxes, along with a penalty of more than $7,000, a total amount that would wipe out their remaining finances and force them to sell their home. The Greens, acting pro se, filed a petition with the United States Tax Court in early 2014 disputing the IRS’s determinations.

OUR OBJECTIVE:

After learning about Daniel and Maura Green’s situation from the University of Washington Federal Tax Clinic in Seattle, Andy Roberson (USIT-CHI) and Elizabeth Chao (USIT-CHI) took them on as pro bono clients.

With their case already docketed in Tax Court, the Greens’ new legal team had little time to gather and send detailed documentation to the IRS before they would need to go to trial. With limited time to act, the team aimed to secure a favorable settlement that would significantly reduce or eliminate the more than $43,000 amount the IRS had determined the Greens owed.

THE OUTCOME:

The Greens’ legal team knew that the strength of their case depended on the facts and records Daniel and Maura could produce. With the settlement clock ticking, they needed to collect and review hundreds of pages of documents and spend hours in conversation with the Greens to understand Daniel’s accident, therapy and all of the expenses that had made his new life possible, and then explain them to the IRS.

Physical distance added to the challenge of collecting and processing reams of information in time to reach a settlement with the IRS. The Greens’ home in Hawaii and their legal team’s office in Chicago were 4,000 miles and five hours apart, limiting their opportunities to communicate directly and enhancing the difficulties in obtaining, clarifying and finalizing documentation.

In order to prove the Greens’ entitlement to the tax deductions they had claimed, every item related to Daniel’s medical expenses had to be thoroughly documented and defended. At issue was not just the cost of medical equipment, but a host of items and services that contributed to his care: for example, a ramp through the Greens’ front door, a bathroom renovation to make space for Daniel’s wheelchair and a caretaker in the shower, travel for treatment and rehabilitation and many other expenses.

After compiling and sending a 100-page file that incorporated valuable feedback from Lowell Yoder (USIT-CHI), the then-head of McDermott’s U.S. & International Tax Practice, the Greens’ tax counsel defended their claims in a phone meeting with a skeptical IRS agent. They were able to prove the validity of the Greens’ claims to the IRS, and ultimately, the IRS accepted the tax return as originally filed.

The result was a complete victory that reduced the amount the Greens owed to the IRS from more than $43,000 to $0.

MOVE FASTER:

When they brought in their McDermott tax counsel, it had been almost three years since Daniel and Maura Green had filed the tax return disputed by the IRS.

From that point forward, the Greens and their tax team moved quickly to secure a favorable settlement. Within just six months, they reviewed hundreds of pages of documents relating to Daniel’s medical condition and related expenses, provided detailed explanations to the IRS addressing the expenses and how they related to Daniel’s medical care, reviewed the information with an IRS agent and obtained a full concession, bringing the Greens’ long conflict with the IRS to a successful close without the added strain of a trial.

Maura Green declared the victory “the best Christmas present ever” after receiving the news from her McDermott tax team in December 2014 that the Tax Court had entered its decision that the Greens’ tax return was correct as filed, and no additional taxes or penalties were due.

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Note: Clients’ names have been changed to protect privacy.