Talking too much during an audit leads to tax woes for a filer and his wife. While chatting with a revenue agent who had begun an examination of their return, the husband inadvertently alerted the auditor to a home sale that occurred in the year prior to the one under audit.
The couple claimed the gain from that sale was tax free on account of the home sale exclusion, but the agent ended up expanding the audit to include the previous year. He found that the couple rented out the home to their son and his family and didn’t actually live in the unit. A district court agreed with the agent that they didn’t qualify to exclude any portion of their gain (Cohen, D.C., N.Y.). Thus, the husband’s loose lips cost the couple over $150,000 in tax, penalty and interest.