Tax Court in Brief | Elstein v. Commissioner | Reasonable Cause Defense for Failure to File

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Tax Litigation:  The Week of July 25th, 2022, through July 29th, 2022

Elstein v. Comm’r, T.C. Summary Opinion 2022-14 | July 18, 2022 | Panuthos, J. | Dkt. No. 18272-17S


Short Summary: The IRS declared deficiencies against the taxpayer for years 2011, 2012, 2013. The IRS issued corresponding accuracy-related penalties and additions to tax under § 6662(a) and § 6651(a)(1), respectively. The taxpayer conceded deductions related to self-employed health insurance, alimony payments, medical and dental expenses on Schedule A, Itemized Deductions, and Schedule A miscellaneous deductions. The IRS conceded that the taxpayer was not liable for accuracy-related penalties. Therefore, all issues pertaining to deficiencies and penalties were resolved and the only issue for trial was additions to tax. In years 2012, 2013, and 2014, the taxpayer timely requested extensions to file tax returns for the prior year. However, the taxpayer failed to timely file his return by the October 15 extension deadline for each year. The taxpayer worked as a partner at a law firm from 2011-2015. In 2019, the California Bar placed him on involuntary inactive status because of an illness.

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Insights: This case is pretty straightforward. The IRS will issue, and the Tax Court will assess, additions to tax under § 6651 if you do not timely file and fail to establish an affirmative defense for that failure. The taxpayer attempted to assert that his illness reasonably caused his late filings. However, he never produced any information linking his 2019 status and his tax returns from 2011-2013. He generally stated that his illness made it difficult to complete tasks on time. On cross examination, the taxpayer declined to speak about the circumstances of his involuntary active status. Thus, his reasonable cause failed, and he owed the additions to tax.