In 2003, Bohdan Senyszyn misappropriated funds from a real estate developer in the amount of $252,726. Senyszyn subsequently pled guilty to criminal tax charges, including tax evasion, related to these funds.
The IRS then audited Senyszyn’s tax return for 2003 and determined that he did not include the misappropriated funds as income on his tax return for that year. The IRS also asserted the fraud penalty against Senyszyn.
However, the IRS failed to take into consideration that in 2003 Senyszyn returned the money he misappropriated from the real estate developer. The United States Tax Court, in holding in favor of the taxpayer, stated that there could be no tax deficiency because he returned the money that he misappropriated in the same year that it was misappropriated.
The IRS attempted to hold Mr. Senyszyn liable for a tax deficiency and penalties because he stipulated to taking these funds from the real estate developer in the criminal tax case. Because Mr. Senyszyn had returned the funds in the same year that they were misappropriated, the Tax Court stated that Mr. Senyszyn was not liable for any tax or penalties.