Beating the IRS in Tax Court ain’t easy. But if you want to have a chance, as difficult as this may be, you’ve got to employ a touch of common sense.
In Carmickle v. Commsisioner, T.C. Summary Opinion 2012-60 (2012), Sam Carmickle owned an apartment building as well as a home. During 2006, Carmickle sold the apartment building for a gain of $90,000, but excluded the gain from his tax return on the premise that it was excludible under I.R.C. § 121.
As you may recall, I.R.C. § 121 excludes up to $500,000 of gain on the sale of a taxpayer’s principal residence, provided the taxpayer both owned and used the home as his principal residence in 2 of the previous 5 years.
Unfortunately for Carmickle, however, there was absolutely no evidence that he lived in the apartment building. He used the address of a home located in Chicago as his mailing address, parked his vehicles there, and most damning, he claimed a $20,000 home office deduction for a space in the Chicago home.
As you might imagine, the IRS denied the application of the I.R.C. § 121 exclusion to the gain on the sale of the apartment, holding Carmickle responsible for the full amount of the $90,000 gain. The Tax Court agreed, handing down a 20% underpayment penalty for good measure.
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