The Second Circuit upheld a Tax Court ruling that taxed a taxpayer on half of an S corporation’s 2014 income because she repeatedly asserted she owned 50% of the company in related bankruptcy proceedings and failed to prove she gave up that interest.
Holding
The Court upheld the Tax Court’s conclusions that in 2014, Karen Veeraswamy owned half of Ashand Enterprises. It also confirmed that bankruptcy documents did not prevent the IRS from contesting ownership, that the IRS’s income calculations were justified and unchallenged, that Rule 155 cannot be used to revisit deductions, and that penalties under §6651(a) and §6654 were applicable because she failed to demonstrate reasonable cause or an applicable statutory exception.
Why It Matters
Taxpayers can constrain themselves by taking sworn positions in other forums. Bankruptcy filings and claims can become key evidence in later tax litigation.
Bankruptcy plan language that describes ownership does not automatically bind the IRS. Preclusion r…
