(2009-2011) SIGNER FILES CLAIM FOR REFUND OF
TAXES PAID IN 2008 FOR SECOND IRS
AUDIT; IRS ADMITS 2008 AUDIT CONCLUSION
WAS WRONG, REFUNDS SIGNER $121,639 WITH INTEREST

As time went on after I reluctantly paid the $111,488 IRS assessment in July 2008, clues surfaced indicating that GM had instigated the second IRS audit as I believed it had done in the first audit in 2005.  In light of these multiple revelations of GM/IRS conspiracy seemingly driving the suspicious conclusion in the second audit, on April 14, 2009, my CPA filed a 1040X amended return refund claim for taxes I paid in July 2008 for the 2005 tax year.  The following account is quite detailed, but I feel it is necessary for readers to comprehend the unbelievably bizarre, seemingly manipulated, process that took place.  Please note that the documents viewable in the blue links have names redacted, but in 2013 I have changed the generic titles in the following account to reflect the actual names of the IRS personnel.

I heard nothing from the IRS regarding my refund claim until nearly ten months after the IRS’s receipt of the documents.  On February 8, 2010, I received a call from IRS Revenue Agent Cas Mar who was responding to my filing of the 2005 Form 1040X amended return, which the Agent referred to as a “claim.”  He asked me for some information and documentation concerning the funds I had loaned to the original corporation.  I provided the information, which was added to a previously submitted rebuttal sup­porting the deductibility of the bad debt.  I met with Mr. Mar on March 1, 2010, and presented him with a 23-page letter with 41 supporting documents.  This letter contained support for the allowance of the deduction named in the 1040X amended return (known as a “claim,”) as well as the history and evidence that GM had initiated two IRS audits on me.

Over the months that followed the February 8 contact, I met with Mr. Mar and his Acting Manager, Mike Adams, several times, and provided extensive documentation that they requested.  I had countless telephone discussions with Mr. Mar.  Shortly after our discussions began, Mr. Mar determined that the reason the IRS had used for disallowance of my deduction, the reclassification of the debt to capital contributions, was wrong.  Under the oversight of Mr. Adams, Mr. Mar then spent months of research (concurrent with other assignments he had) searching for other reasons to disallow my deduction.  On June 11, 2010, I met with Mr. Mar and Mr. Adams at the Oakland IRS office.  Based on conversations with Mr. Mar just prior to the meeting, I was under the impression that I would be presented with the conclusion in my favor which would then be processed for refund.  Instead, at the meeting I was presented with a request for yet further documentation.

Mr. Adams informed me that, at the last minute before the meeting, he had asked Mr. Mar to research whether the bad debt was business or non-business, and yet another time about the timing of the deduction in 2005 versus 1995.  Mr. Mar had already researched the timing issue to death and found nothing that would prevent it from being deductible in 2005.  We set a meeting for June 15 at my dealership, at which time I furnished Mr. Mar the requested documentation relative to the business/non-business issue.  As I furnished the requested documentation on the business/non-business question, I asked if, assuming that question was satisfied, there was anything else that would prevent me from getting my refund.  He replied that there wasn’t.  Mr. Mar’s response confirmed what I had felt by the end of the June 11 meeting, that Mr. Adams had backed off the dead horse timing issue.

On June 21, 2010, I sent a complaint to the Treasury Inspector General for Tax Administration (TIGTA,) which is the fraud, waste, and abuse office of the Treasury Department.  That office, among other things, investigates alleged criminal IRS activity, which includes harassment as I alleged.  My complaint consisted of a short cover letter, and the March 1 letter I gave to Mr. Mar, but with content relating only to my 1040X removed, as it was unrelated to the GM/IRS collusion to harass that I alleged.

On July 15, Mr. Mar informed me that he had a new Acting Manager, Brian Maguire.  (It is unclear what day Mr. Maguire arrived, but I talked with Mr. Mar on July 8 and he didn’t mention anything about a new Acting Manager.)  He explained that Mr. Maguire somehow reported to Mr. Adams, but he wasn’t sure of the structure.  I would later find out that Mr. Maguire was normally a Revenue Agent like Mr. Mar, and not a manager.

Finally, on July 20, 2010, Mr. Mar told me that he was working on the “Lead Sheet,” which is a report of his research and conclusion.  He said it was leaning in my favor, and he hoped to have it ready and submitted to Mr. Maguire in the next few days.  On July 27, Mr. Mar told me he was nearing completion of the Lead Sheet.  I asked if it would be in my favor, to which he said it would, but he had discussed the case with Mr. Maguire who said he “didn’t see it,” meaning he didn’t think the bad debt deduction was valid.  Mr. Mar said he told him to do more research, to which I expressed my shock at that since he had already researched it for more than five months.  Mr. Mar replied that he actually meant to provide more detail in the Lead Sheet.  He told me that Mr. Maguire would understand the background when he sees the completed Lead Sheet, thus leaving me with the feeling that the conclusion in my favor would stand and I would get my refund.

Having not heard from Mr. Mar, I called him on July 30.  Mr. Mar said that he had submitted his conclusion to Mr. Maguire, who rejected it on the basis of timing, saying it could only have been deducted in 1995, and not in 2005.  Shocked that this dead horse issue would surface yet again, I replied that he and Mr. Adams had already considered and rejected that theory multiple times, as had Revenue Agent Robert Hunt in 2008.  Mr. Mar said he would do more research on the timing issue.  (It is inconceivable there could have been any stone unturned after the months of research.)  He went on to say that even if Mr. Maguire disallows it based on timing, I could go to appeals.  I was left with the impression that Mr. Mar felt that Mr. Maguire’s decision to disallow was not negotiable.

Mr. Mar called me on August 2 to update me on another issue I was pursuing, the 2008 Form 1045 refund of $29,101 that had been filed in August 2009, and I still hadn’t received.  It was seemingly being withheld pending the outcome of the 1040X refund claim.  (That saga is discussed in Expanded Details “(2009c-2011) IRS Withholds $29,101 Refund Due on 2008 Form 1045, Then Pays.”  I didn’t get that refund until June 2011, and even then without interest on the delay of nearly two years.)  He also told me that Mr. Maguire had cleared his schedule for the following day so he could research the timing issue.  I told him he had done that many times and found nothing to support disallowance, which he confirmed.  I told him he should tell Mr. Maguire to do the research since he’s the one who made the decision to disallow.  He replied that Mr. Maguire doesn’t have time to do so.

Mr. Mar called me the morning of August 4 to tell me that he was off sick with stomach problems the day before, but would work on my case today and call me later.  He called me again late that afternoon, at which time I first asked how he was feeling, to which he replied, “Not very good.”  I asked if his stomach was hurting again, to which he replied that it wasn’t, that it was due to Mr. Maguire’s decision.  He told me that he had completed his conclusion allowing my claim and thus a refund, but Mr. McGuire rejected it and was standing firm on his position that the bad debt is not deductible in 2005,  and only would have been in 1995.  So, for the seemingly 10th time I went through the lack of logic in that position, and reminded him that he had researched it many times.  He confirmed that he had, and found nothing to support disallowing it in 2005.  He suggested that I meet with Brian and him and present my case to him.  (I would have done this even without Mr. Mar’s suggestion.)  We set a meeting for August 9.  I asked him if Mr. Maguire knows the background of the GM/IRS issue I laid out in my March 1 letter to him, to which he replied that he apparently didn’t.  I suggested he have Mr. Maguire read it before the meeting.

On August 5, I called Mr. Mar and asked him to fax me a copy of his conclusion in my favor, which he did.  Pages 1, 9, and 10 of this ”final” 10-page July 27 conclusion Claim for Bad Debt” may be viewed here.  (Pages 2-8 are primarily confidential personal information and discussion of regulations and court cases, summarized on page 10, supporting the my claim.)  At the top of page 1, an adjustment of “(329,250.00)” is shown, which reflects the Agent’s conclusion to allow the amount of bad debt deduction applicable to the 2005 tax year as reflected in my claim.  Just below that, the following statement appears: “Conclusion:  (Reflects the final determination on the issue.)  Per IRC 166 bad debt deductions have been allowed as claim has stated, as originally filed by the taxpayer.”  Internal Revenue Code 166 (“IRC 166″) item (a)(1) states, “There shall be allowed as a deduction any debt which becomes worthless within the taxable year.”  There is no language anywhere else in Section 166 that modifies this simple statement to incorporate any exceptions to the timing issue.  In my case, the debt owed to me by my old corporation clearly became worthless in 2005 when the IRS disallowed the consulting agreement that had provided income that gave the ability to repay the debt.  As it was previously a good debt, I could not possibly have deducted it as a bad debt while the consulting agreement existed from 1995 to 2005, and only did so in 2005 when the agreement ended as a result of the IRS audit.  Near the end of the conclusion, the bottom of page 8 and top of page 9 summarize the Government’s position, which includes the determination of bad debt deduction in 2005.  But, as stated above, this favorable conclusion was rejected by Mr. Maguire.

I met with Mr. Mar and Mr. Maguire on August 9 as planned.  Mr. Maguire opened the meeting by explaining what he knew about the case, which wasn’t much beyond Mr. Mar’s 10-page “Claim for Bad Debt” Lead Sheet in my favor.  He held up an envelope containing my March 1 letter that the Agent had provided him, but informed me that he hadn’t read it.  I asked him if he was familiar with the GM/IRS collusion issue, to which he responded that he was not.  Both Mr. Mar and first Acting Manager Mike Adams were well aware of it.

Mr. Maguire stated that the bad debt deduction should have been taken in 1995 and is not allowable in 2005.  I responded that the Agent had researched the issue extensively for the last six months and found nothing that would prevent it from being deducted in 2005 per Internal Revenue Code 166.  Mr. Mar confirmed my statement.  I then referred to IRS Publication 556, “Examination of Returns, Appeal Rights, and Claims for Refunds.”  On page 4 of the Publication, it is stated, “The IRS must follow the tax laws set forth by Congress in the Internal Revenue Code.  The IRS also follows Treasury Regulations, other rules, and procedures that were written to administer the tax laws.  The IRS also follows court decisions.”  I asked Mr. Maguire if, in light of this statement, he had any basis for his theory of disallowance in 2005.  He replied that they owe me that, and that Mr. Mar will research it and let me know.  This shocking response clearly acknowledged that he had no basis for his seemingly arbitrary, yet inflexible, stance.  I asked when they would have the case finally concluded, to which the Mr. Maguire replied that it would be no more than two weeks (August 23,) but hopefully by the end of the week (August 13.)

On August 17, Mr. Mar told me that other priorities since the August 9 meeting had prevented him from working on my case, but he would do research to find something to support the Mr. Maguire’s decision to disallow the deduction.  Since the decision had already been made against me, I asked him to close the case as soon as possible so I could file for Appeals.  On August 18, I sent an e-mail to Mr. Mar and Mr. Maguire confirming my request, and expressing my frustration at the lengthy and inconsistent process that was sabotaged at the last minute by Mr. Maguire.  This e-mail can be viewed here.  It would seem that the shameful chronology described in this e-mail would seemingly cause an Appeals Officer to take a dim view of Mr. Maguire’s last minute disallowance edict.

August 23 arrived without the Agent’s completion of the conclusion as promised by the Acting Manager.  After hearing nothing more, on August 26, I sent TIGTA an amendment to my June 21 GM/IRS collusion complaint, now asking that the bizarre events of 2010 be incorporated into the investigation.

On August 30, Mr. Mar completed and mailed the second “final” conclusion, which showed full disallowance of my refund claim per the new Acting Manager’s instruction.  This second “final” conclusion “Claim for Bad Debt” may be viewed here.  The first two pages are the cover letter stating full disallowance of my claim, followed by three pages of the Lead Sheet.  In contrast to the first “final” conclusion, the first Lead Sheet page shows .00 adjustment, and the conclusion states that 1995 was determined to be the year of debt worthlessness.  The second Lead Sheet page restates the Government’s Position as such, and the final Lead Sheet page states my position that the loans became worthless in 2005, and that I vehemently disagree with the Government’s position and would like to go to Appeals.

On September 14, I received a phone call from San Jose IRS Territory Manager Alonzo Bennett, who informed me that TIGTA had assigned him the investigation of my June 21 GM/IRS collusion complaint.  Among other things discussed, I told him that the IRS had recently disallowed my refund claim with which he was familiar, and that I need to file for Appeals within 30 days of the August 30 letter I received.  He responded that he would put that deadline on hold pending the collusion investigation, and subsequently had a Group Manager write me a confirming letter.  Despite the fact that the Appeals filing deadline had been put on hold, just to be safe I sent my Appeals statement on September 27, 2010, with this cover letter.

On October 18, the Mr. Bennett informed me that he was conceding on my refund claim, and would reverse the August 30 disallowance I had received.  Due to the fact that he reversed the disallowance of my claim, the case was resolved before it went to Appeals.  On October 22, an IRS Group Manager faxed me a confirmation of the allowance for me to give to the California State Franchise Tax Board for yet another a related ordeal resulting from the 2008 IRS audit.  In mid-2009 the State of California billed me for approximately $34,000 tax as a result of the IRS’s notification of the 2008 audit disallowing the bad debt deduction.  I informed the State that I had filed a Form 1040X for reversal of that audit result, and was waiting for the IRS to act.  In early 2010, the State places a lien on my residence.  In October 2010, a State representative came to my residence and demanded payment.  I informed her that the IRS had just verbally told me they would reverse the disallowance, and was, in my opinion, fraud in the first place.  I offered to have her talk to the IRS manager on the phone, but she refused.  I later obtained the aforementioned confirmation and faxed it to the State representative.  This saga is discussed in Expanded Details “(2009b-2011) California Assesses $34,000 Tax & Interest Based On IRS Audit, Then Reverses.”

On November 9, 2010, Revenue Agent Cas Mar sent me notice of acceptance of my claim.  This third “final” conclusion “Claim for Bad Debt” may be viewed here.  Following the cover letter, the first page of the Lead Sheets shows the (329,250.00) adjustment, the Conclusion, and the Government’s Position, all of which revert back to the first “final” conclusion, and thus override the second “final” conclusion.  So, at this point in late 2010, the status of my 2005 personal return had gone full circle and ended up the way I originally filed it.  To get to that point, it cost me considerable CPA and other expenses, countless hours, and considerable stress.  The IRS also spent considerable time and taxpayer money.

I received a letter dated January 15, 2011, from the California Examination Area Director confirming the IRS’s acceptance of my claim, which reversed its demand of approximately $34,000.  In May 2011, the State finally paid me a refund it owed me from 2008, which it had been withholding.   I subequently received two checks dated February 4, 2011, totalling $121,638.78 for refunds of the audit-induced taxes for the 2005 and 2006 tax years.  The confirming letter and checks may be viewed here.  As noted on the checks, included therein was interest totalling $12,578.90 for the time since I paid the wrongly assessed tax in July 2008, as well as a refund of the interest I had paid at the time.

Audit File obtained through Freedom of Information Act

Through the Freedom of Information Act (FOIA) I have obtained the Audit File for the Form 1040X review discussed above.  Conspicuously absent from the 430 pages produced were my detailed March 1, 2010, letter to Revenue Agent Cas Mar describing my observation of GM/IRS conclusion, as well as the 7/27/10 first “final” conclusion allowing the deduction.  Some of the attachments to the March 1 letter were in the File, however.

Included in the FOIA File was the Examining Officer’s Activity Record, which details Mr. Mar’s review of my refund claim from January 22 to November 10, 2010.  I have added a page at the end of the Activity Record with notes about items appearing therein.  In reviewing the Activity Record it is apparent that in the nearly 10 months from beginning to end, Mr. Mar explored every conceivable reason that might support disallowance of my claim, including repeated research on the timing issue.  This research bore the allow-disallow-allow results described above.  Other confirming observations of the Activity Record can be made:

  • 7/20/10 entry shows that Agent concluded that timing was 2005.
  • 7/27/10 last entry shows “RA (Revenue Agent) wrote up lead sheets and provided it to AGM (Acting Group Manager) for review.”  Those lead sheets comprise the first “final” conclusion allowing my claim, which was faxed to me at my request on 8/5/10 as discussed above.
  • 7/28/10 and most 8/4/10 entries were redacted, with the next visible entry following the 7/27 entry quoted above is on 8/4: “RA called TP (Taxpayer) and informed him that the timing was the issue and that based on the facts we must disallow the claim.”  So, from one entry to the next, my claim went from a 10-page well-supported written allowance to an unsupported, and final, disallowance.  Thus, the previous 13 pages of entries in the Activity Record, constituting 6 months of the Revenue Agent’s research and preparation, were totally dismissed by a brand new participant in the review process.  It should be noted that the RA informed me on 7/15/10 that the new AGM had been assigned, but the Activity Record does not distinguish between the old and the new AGM’s.
  • 8/9/10 entry describes the meeting between the RA, the AGM, and me.
  • 8/10/10 entry describes the RA’s research to find something to support the decision the AGM had already made on or before 8/4.  It is unconscionable that a conclusion would be finalized before finding anything to support it.
  • 8/30/10 entry describes Revenue Agent Report containing second “final” conclusion referred to earlier, which reflects the AGM’s pre-determined disallowance of the bad debt deduction.
  • 11/8/10 entry describes RA’s call to me informing me that my claim was being allowed.
  • 11/9/10 entry describes Revenue Agent Report sent to me reflecting claim being allowed.   This is the third (and last) “final” conclusion referred to earlier.

Also of note on the Activity Record are the number of hours spent by the RA.  The handwritten numbers at the bottom of each page (written by IRS personnel) reflect either 175 man-hours (below 9/9/10 entry) or 171 man-hours (below 11/10/10 entry.)  Below the 7/27/10 entry is printed “148″ time on activity to date.  So, all of this time was wasted when the conclusion was disregarded by the new AGM, and more time was required to reverse the conclusion, which itself was later reversed.  When the Territory Manager Alonzo Bennett subsequently reversed it back to the original  conclusion, more time was spent.  This does not include unknown hours spent by managers and support people, nor the 63 hours spent by the original RA in 2008 crafting the original disallowance conclusion to conform to his Manager’s pre-determined edict.  Thus, taxpayers paid for the time of multiple personnel, as well as the many associated costs such as benefits and facility space, to arrive at the proper conclusion of deductibility acknowledged by the original RA in 2005 at the time of the first audit of the 2003 corporate return.

Additional disturbing items

Adding further to the already bizarre nature of Mr. Maguire’s overriding action is the fact that he was normally a Revenue Agent; the same as Mr. Mar who he overrode.  The only difference in the two agents’ positions was, according to Mr. Mar, Mr. Maguire was a level 12 and Mr. Mar was a level 11.  Mr. Maguire was apparently temporarily made an acting manager for the short time my 1040X review was being finalized, and then returned to his revenue agent position within days after the August 30, 2010 adverse conclusion was written.  The fact that he was not even normally a manager makes it even less likely, and consequently more troubling, that he would make such a bold, unsupported, overriding conclusion regarding a large amount of money in such a sensitive case.  It is thus reasonable to assume that he was acting on instruction from somebody above him.  Additional information surfacing during the subsequent TIGTA GM/IRS collusion investigation raises further disturbing questions about Mr. Maguire’s action.  This will be discussed later in the investigation section.

I asked Cas Mar, who did months of research in 2010, how often his conclusions are overridden by his manager.  He responded that it had only happened twice before.  I then asked him what percentage of cases that represented, to which he replied that it is about 5 percent.  This rare occurrence is consistent with the similarly rare management override acknowledged by original Revenue Agent Robert Hunt in 2008 when he wanted to accept my 2005 tax return as filed.  So, I encountered two extremely rare overrides against me.  The odds of that happening to a taxpayer would be 5% times 5%, or 0.25%, or one in four hundred.  There is no way I believe this could have been coincidence – the overrides had to have been corruptly influenced from levels above.

Consistent with the bizarre events in this 1040X saga, the aforementioned June 21, 2010 complaint I sent to TIGTA was equally bizarre.  In June 2011 I obtained TIGTA file documents through the Freedom of Information Act that clearly pointed to a TIGTA cover-up presumably to keep the GM/IRS collusion story quiet due to the political damage it would cause President Obama.  There are indications that Mr. Maguire was put in place over Mr. Mar as part of the cover-up scheme developed by TIGTA.  See Expanded Details (2010-2011) U. S. Treasury Inspector General for Tax Administration (TIGTA) Office Commits Cover-Up of Signer Allegations.