Ben and Sally Wen, married taxpayers filed a return claiming the American Opportunity Tax Credit (AOC). They

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Ben and Sally Wen, married taxpayers filed a return claiming the American Opportunity Tax Credit (AOC). They reported a total credit of $7,500 ($2,500 for each of their kids) on Form 8863, Education Credits, including a refundable portion of $3,000. Thus, they failed to carry the $4,500 non-refundable portion of the credit to their Form 1040, due to what appears to be a clerical error. Their return simply claimed the credit without disclosing all of the facts relevant to their claim and included no Form 8275. One year later the Wens claimed a refund of $4,500 on their return.

The IRS mistakenly issued a refund of $7,500. Later, the IRS disallowed the entire AOC; the Wens had already claimed the AOC for their kids in the prior four taxable years. Therefore, the IRS imposed a $1,500 accuracy-related penalty under IRC § 6662(b). The Wens tell you they used FAST-TAX, tax return preparation software and any error were due to confusion with FAST-Tax's instructions.

1. Find a sophisticated legal issue raised by the Wens in their last explanation to you.

2. Briefly discuss the relevant code and regs related to the primary issue

3. Find and discuss a relevant court case.
4. Apply all the laws (Code, regs, cases) that you discussed.