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The Morettis failed to file their 1990 and 1991 Federal tax returns. The IRS, undoubtedly wanting to do the Morettis a favor, used its authority under IRC Sec. 6212(a) to file their tax returns for them. Under the IRS's approach, the Morettis owed $1,924 and $4,713 for 1990 and 1991 respectively. The IRS's tax return program must not have had a married filing jointly box to check, so the Morettis' returns were filed using married-filing-separately tax tables.

The Morettis then found a more fully-featured tax program and filed using married-filing-jointly tables. Not surprisingly, the Morettis' version of their tax returns indicated that the IRS owed them money, not the other way around. In addition to the different tax tables, they filed information regarding two proprietorship businesses, noting that one had a net operating loss. As a coup de gras, the Morettis filed for a 1989 refund as well. They then filed a Tax Court petition to get their money.

At the Tax Court, the Morettis didn't fare so well. First, the court said it lacked jurisdiction regarding the 1989 refund because the IRS had not issued a notice of deficiency regarding that year. (A notice of deficiency is the ticket to get into the Tax Court; without one the court cannot hear the case.) Then the court said the Morettis failed to overcome the presumption in favor of the IRS regarding filing status. The court refused to accept the information about the Morettis' proprietorships. It said it would not order a refund for 1990 and 1991 because the Morettis waited over two years after paying their withholding taxes before seeking the refund. (See "Tax Court Powerless if Taxpayer Waits over Two Years and Until Notice of Deficiency Before Filing" in The CPA Journal regarding a similar issue.) And to put salt on their wounds, the court added penalties for nonfiling and negligence.

The Morettis appealed. The Court of Appeals for the Second Circuit took pity, in part. The court noted that the Morettis proffered their marriage license as evidence and testified that they had cohabited during the period in issue. They also noted that they had signed all their tax returns up to 1990 jointly. The Appellate Court found that this was enough evidence to overcome the presumption in the IRS's favor; the Morettis could file jointly.

Further, the Court of Appeals held that the Tax Court was incorrect in rejecting much of the evidence proffered regarding the proprietorships. But the Tax Court was upheld in denying the 1990 refund because of the statute of limitations on refund claims.

Source: Moretti v. Commissioner, __ F.3d __, No. 95-4036, (2d. Cir. 2/23/96).

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