Reasonable Interest Rate Litigation

L1: Reasonable Interest Rate LitigationFarley’s (pro se) v. Commissioner (2003 WL 1923472 US Tax Ct)
Presumably discovered on audit, the Farley’s were assessed the 10% surtax on their SEPP program of $23,000 plus interest for implementing a SEPP program (which did run out of assets prematurely) which used an unreasonable interest rate assumption of 29% in conjunction with the amortization method.
Farley’s presented evidence that 29% was reasonable at the time (1995 – 1997) but the court remained unconvinced and found for the IRS.
In my opinion, the Farley’s made at least two major mistakes:
1. They made an outrageous interest rate assumption of 29%.
2. They represented themselves pro se in tax court.
Result — all of you SEPPers using outrageous interest rates had best run for cover. More seriously, the court’s opinion (in)directly sets precedent on two issues:
1. The court recognized that 72(t)(2)(A)(iv) does not tell a taxpayer how to compute SEPPs but that Notice 89-25 did provide for three solutions (but not necessarily the only solutions).
2. Neither party presented any case law as to what DOES constitute a reasonable interest rate implying that had one of the parties done so, such case evidence would have been considered.

TheBadger
wjstecker@wispertel.net

2003-05-22 08:18, By: TheBadger, IP: [127.0.0.1]