Overlooking an IRS Scrivener’s Error.

We have all probably dreamed of the day we could catch the IRS in an error that would work to our benefit. The taxpayers in Kunkel v. Commissioner, No. 15-2232, 2016.C07.0000730 (7th Cir. May 10, 2016) (VersusLaw), thought they had just that opportunity. The parties were in negotiations for what amounted to approximately three-quarters of a million dollars in underpayments and penalties for tax years 2008-2010. The statute of limitations period was running out and, as is often the case, the parties agreed to extend the statutory period in order to continue to work to resolve the audit without litigation. Negotiations eventually broke down and the IRS filed suit against the taxpayers.

The taxpayers challenged the earliest year in the audit, interposing the defense of statute of limitations. In completing the form, the typist at the IRS entered the dates the limitations period would expire, rather than entering the ending dates of the tax years involved in the audit. The Tax Court agreed to reform the document to address the “mutual mistake” that all parties overlooked when it was signed. The court observed that the document had been signed by the taxpayers’ accountant who was knowledgeable in IRS procedure and knew the years involved in the audit. Further, the court noted, that for the accountant to contend otherwise could put in jeopardy his reputation and ability to practice before the IRS. Lastly, the court concluded that the form would serve no purpose if it did not operate to extend the limitations period for 2008.

The court conceded it was aware of the irony in permitting the IRS to collect a 20% penalty for the taxpayers’ errors on their returns when its own form was sloppily prepared; but noted that the taxpayers’ appeal did not ask it to consider the incongruity.

It would appear that the take-away from a case like this is that it pays to read documents carefully—and get all errors corrected, even the ones you think may work in your favor later. As the court noted, the taxpayers’ accountant likely noticed the error when the documents were executed. While financially this appeal might have been a gamble the taxpayers were willing to pay to take, in the end, they gained nothing.


For other information about issues arising when dealing with underpayments with the IRS, we invite you to review the links below to Legal Issues from Litigation Pathfinder.