IRS Wins Its Argument That Amount Was a Taxable Advance and Not a Loan, But Assessed Deficiency in Wrong Year.

The petitioner, an ex-NFL player, co-founded a non-profit business in 1997 to train at-risk persons to be automotive technicians.  Upon the death of the co-founder, the petitioner handled fundraising until he resigned in 2010.  The petitioner received a base salary and a business credit card for payment of business expenses.  However, the petitioner also charged personal expenses on the card.  The non-profit treated the personal expense charges as advances for future wages or business expenses.  Beginning in 2005, the non-profit started withholding money from the petitioner's salary for purposes of paying back the advances.  The petitioner resigned in 2010 at the time that the balance due on the credit card was $83,000.  The non-profit issued a Form 1099 to the petitioner for 2010 for the $83,000.  The petitioner did not include the $83,000 in income and IRS, upon audit, assessed additional taxes and penalties for 2010 based on the $83,000 being an advance and not a loan.  The court agreed that the $83,000 was taxable as an advance, but that it was taxable in the years received.  Those years were 2003 through 2006.  However, the only year in issue was 2010, so the case was dismissed.  If the tax years 2003-2006 were closed due to the statute of limitations, the IRS is barred from assessing any additional tax for those years (unless, of course, fraud (no SOL) or substantial understatement of tax is involved (six year SOL) - which also requires fraud to be present).  Starke v. Comr., T.C. Sum. Op. 2015-40.