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In support of petitioners’ argument, the C.P.A. letter
describes their factual situation as follows:
In 1993, the taxpayer’s [sic] sold their business. At
the time they sold it, they had no idea what their
basis in it was, much less the tax that might be due.
Furthermore, even before the return was due, they were
engaged in a lawsuit with the purchaser regarding the
“non-compete” portion of the contract for sale. It
appeared that the ultimate outcome could result in the
entire sale being voided. Not knowing what tax might
be due, or even if any tax would be due, the taxpayers
made a $125,000 payment with their extension in April
1994. This payment was not based on any estimate of
the tax liability. It was made so that any interest
and penalties could be avoided when the ultimate tax
was calculated. It was very much akin to a pre-payment
of a proposed examination assessment – except that they
had NO idea the amount of the tax that may be due.
Like many lawsuits, this one remained in the courts for
many years. It was not until late 1998 that the Texas
Supreme Court finally decided the case in favor of the
taxpayers. Since so much time had passed, and due to
poor record keeping and numerous other complicated
transactions during 1993, it was not until late 1999
that the 1993 return could be completed. It was not
until the return was completed that the tax liability
was actually known. Until then, it did not even rise
to the level of a wild guess. It was simply a deposit
to avoid interest and penalties.
Appeals sustained the proposed levy, rejecting petitioners’
argument that they intended the 1994 remittance to constitute a
deposit rather than a payment of tax. As previously stated,
petitioners’ sole assignment of error is that Appeals erroneously
characterized the 1994 remittance as a payment rather than a
deposit.
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