The Tax Court in Brief – February 13th – February 17th, 2023
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Tax Litigation: The Week of February 13th, 2022, through February 17th, 2023
- Thomas v. Comm’r, 160 T.C. No. 4| February 13, 2023 | Toro, J. | Dkt. No. 12982-20
- Trice v. Comm’r, T.C. Memo. 2023-15| February 13, 2023 | Gustafson, J. | Dkt. No. 20398-19
- Cattail Holdings, LLC v. Comm’r, T.C. Memo. 2023-17| February 14, 2023 | Lauber, J. | Dkt. No. 27209-21
- Patrinicola v. Comm’r, T.C. Memo. 2023-16| February 14, 2023 | Goeke, J. | Dkt. No. 498-19
Kemegue v. Comm’r, T.C. Summary Opin. 2023-5| February 13, 2023 | Carluzzo, J. | Dkt. No. 8987-20S
Summary: In this non-precedential opinion (see section 7463(b)), the Tax Court addresses an addition to tax for failure to pay pursuant to section 6651(a)(1) and (2). During 2017 Kemegue lost his job and experienced multiple personal and professional setbacks. In April 2018, Kemegue timely requested an extension for filing his 2017 tax return until October 2018. He did not, however, file a tax return for 2017. The IRS prepared a substitute for return for Kemegue for 2017 on the basis of third-party reporting. See 26 U.S.C. § 6020(b). Kemegue did not pay the 2017 income tax liability shown on the substitute for return.
Key Issues: Whether Kemegue was liable for the additions to tax assessed for failure to pay pursuant to section 6651(a)(1) and (2)?
Primary Holdings: Yes. Kemegue did not offer any explanation or evidence of any specific incapacity or illness during the time for filing his return. Rather, he testified to his efforts to seek other employment, including traveling to other states and trying to start his own business. Kemegue did not show reasonable cause for his failure to file his 2017 return and is liable for the addition to tax pursuant to section 6651(a)(1) for the year in issue.
Key Points of Law:
Additions to Tax, Section 6651. Section 6651(a)(1) provides for an addition to tax in the event a taxpayer fails to file a timely return, determined with regard to any extension of time for filing, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. Section 6651(a)(2) provides for an addition to tax for failure to timely pay the amount of tax shown on a return, unless it is shown that such failure is due to reasonable cause and not due to willful neglect.
Burdens. Under section 7491(c), the IRS bears the burden of production with respect to additions to tax. If the IRS meets the burden, the taxpayer has the burden of providing that failure to timely file or pay was due to reasonable cause and not willful neglect. See 26 U.S.C. § 6651(a)(1), (2); Higbee v. Commissioner, 116 T.C. 438, 447 (2001). Whether “reasonable cause” and lack of “willful neglect” exist is a question of fact, and the burden of establishing these facts is on the taxpayer. United States v. Boyle, 469 U.S. 241, 245 (1985).
Reasonable Cause. To prove reasonable cause for a failure to timely file, the taxpayer must show that he or she exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time. Crocker v. Commissioner, 92 T.C. 899, 913 (1989); Treas. Reg. § 301.6651-1(c)(1). A taxpayer may have reasonable cause for failure to timely file a return where he or she experiences an illness or incapacity that prevents him or her from filing the return. Boyle, 469 U.S. at 248 n.6; Jordan v. Commissioner, T.C. Memo. 2005-266. When a taxpayer has not filed a return, the section 6651(a)(2) addition to tax may not be imposed unless the IRS has prepared a substitute for return. See Wheeler v. Commissioner, 127 T.C. 200, 210 (2006), aff’d, 521 F.3d 1289 (10th Cir. 2008).
Insights: To show reasonable cause for failure to file a return, it is probably best for the healthy and not-infirmed taxpayer not to present evidence that the taxpayer was traveling across the country and trying to start a business, instead of filing a timely federal income tax return.