George Lawrence Starke v. Commissioner T.C. Summary Opinion 2015-40, Filed July 7, 2015
George Starke had an illustrious career in the NFL. During his time with the Redskins, he went to three Superbowls, including the Redskins 27-17 win over the Dolphins in 1983. Nicknamed the “Head Hog”, he was part of the Redskins famous “Hogs” offensive line. In 1984, Starke finished his career in the NFL and became a businessman. In his post-NFL career he: started a car dealership; co-founded a non-profit to provide vocational training for at-risk individuals; and opened a restaurant, appropriately, called “Head Hog BBQ”.
It is Starke’s involvement in the non-profit that is the cause of his IRS troubles. In 1997, he founded the “Excel Institute” (the “Institute”) to train at-risk individuals to be automotive service technicians. When his co-founder died, Starke started handling fundraising for the Institute and he stayed in this capacity until 2010, when he resigned; the opinion suggests that this was due to conflicts with a board member and allegations of financial improprieties within the Institute.
In his capacity as a fundraiser for the charity, Starke was paid a base salary along with a company credit card, which he used to pay personal and business expenses. Important for this discussion, from 2003 to 2006 Starke made personal charges that were treated as advances for future wages or business expenses. In 2005, the Institute began to withhold money from Starke’s paycheck to pay back these advances. In 2010, however, when he resigned there was still a balance due of $83,000. As a result, the Institute issued Starke a 1099-MISC form in 2010, treating the whole amount as miscellaneous income. It was not explained why, but Starke did not include the $83,000 as income on his return. Subsequently the IRS audited in 2012 and assessed additional taxes and penalties for the 2010 tax year.
What makes this opinion interesting, besides Starke’s nickname, is that the court’s opinion is short on details about what arguments the parties made. Starke handled this case pro se and his position on the $83,000 of income is not clear, except to say that he told the court that he did not know he owed the money to the Institute. The IRS, on the other hand, argued that the $83,000 was an advance, and not a loan, and thus taxable. That’s it. After the court recited the basic law on this issue, the court then agrees with the IRS that the money taxable to Starke…but not in 2010. Advances, the court said, are taxable in the year received which in this case is between 2003 to 2006. The court then states that those years are not at issue in this case and finds in Starke’s favor. Case closed.
Ouch! The IRS won on the issue that the $83,000 in advances was taxable but loses because it made the assessment for the wrong year! Generally, the IRS has three years from the due date of the tax return (April 15th), unless extended (then on October 15th), to assess additional taxes. If the assessment date passes then the IRS is barred from assessing any additional tax (and hence collecting that tax), unless the assessment period is extended through such things as fraud (forever) or a substantial understatement of tax (up to six years after the due date). Tough break.
Likely, the IRS tried to make a Hail Mary pass to keep this case alive; it probably knew that 2003 to 2006 tax years were closed to assessment and so it had to go forward with the case. Honestly, I am not sure how the IRS could have been clued in sooner about these advance but them’s the breaks. Unless the IRS can show that fraud was involved then even if there was a substantial understatement those tax years are closed.
Postscript: here is the gorgeous George “the Head Hog” Starke now, making a pitch for Bubbles Haircutters. Not often you see Bubbles and Hog together, probably a good thing.