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January 12 2010

David Beats Goliath

Nicole Kurokawa Neily

In a rare occurrence, an average citizen took on the IRS by herself over deducting business school tuition - and won. Good for Ms. Singleton-Clarke for taking on the system. The really infuriating part of the story, however, is how ridiculous compliance is.

From the Wall Street Journal:

Her odyssey began in 2006, when she filed her 2005 return. It showed just over $50,000 of income, several smaller deductions, and one large one-for $14,787 of expenses for an M.B.A. from the University of Phoenix, an online school. Ms. Singleton-Clarke deducted the tuition because her tax preparer told her she met the law's narrow definitions.

When the IRS audited the return in late 2006, she conceded all the IRS's challenges to her deductions but one. She dug in her heels on the tuition deduction because, after looking at a complex diagram in IRS Publication 970, she believed she qualified for it.

The audit process first involved several rounds of confusing IRS correspondence. "At one point I had three requests for the same records, each with a different contact name. I had to spend hours calling to figure out who needed what," says Ms. Singleton-Clarke, a steely but soft-spoken woman.

After that she was summoned to an IRS office in downtown Washington where she had to provide more copies of her résumé, a job description, and other records. She felt overwhelmed and intimidated.

Both the IRS's actions and her reactions are typical, says Christopher Bergin, president of Tax Analysts, a group that fights for tax-system transparency and since l972 has won a series of freedom-of-information cases against the IRS. "Without doing anything illegal, they muscled her. That's what they do. The pressure can be terrifying," he says.

A spokesman for the IRS says that it never comments on issues with specific taxpayers.

As Ms. Singleton-Clarke held fast to her conviction that she deserved the deduction, she drew on skills she developed as a nurse responsible for dealing with doctors who may have infringed hospital rules. That was why she studied for her M.B.A., she says: "I didn't want to feel outmatched by surgeons who didn't want to talk to me."

When the IRS again denied her deduction by mail after her meeting with the agent, Ms. Singleton-Clarke wound up going to Tax Court to set a trial date. But when she came to court in November 2008, it seemed that everyone else had settled their cases: "There was just me by myself at one table and the [IRS] tax team of at another in a big courtroom."

Unfortunately, the IRS trying to bully the little man is par for the course. That's why the U.S. should move to a simplified flat tax, with one low rate and no deductions: people would know exactly what they had to pay, and the government wouldn't have the opportunity to strong-arm citizens. Good for taxpayers... bad for pencil-pushing bureaucrats.

Independent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
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