T.C. M em o . 2 0 1 7 -1 3 3

UNITED STATES TAX COURT

X IBITM A X, LLC, Pet i t i o ner v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 3 8 6 7-1 5L. Fi l edJ u l y 5 , 2 0 1 7.

Eri c W i l l iam

J o h n s o n , fo r p et i t io n er. Sh an n o n M . Harm o n , M el i s s a J an e Hed t ke, an dJ o h n Sch m i t td i el , fo r
res p o n d en t.

M EM ORANDUM FINDINGS OF FACT AND OPINION NEGA, Jud g e: Th is cas e i s b efo re t h e Co u rto n a p et i ti o n fo r rev i ew o f a No t ice o f Det erm i n at i o n Co n cern i ng Co l l ect i o n Act i o n (s ) Un der Sect i o n (s ) 6 3 2 0- 2
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[* 2 ] an d/o r 6 3 3 0 (n o t i ce o f d et erm i n at i o n ). 1 Pet it i o n er s eek s rev i ew o f
res p o n d en t’ s d et erm i n at i o n t o p ro ceed wi th th e co ll ect i o n o f $ 7 2 ,7 0 6 i n p en al t ies
an d ad d i t i o n s t o t ax ari s i n g fro m p et i t i o n er’ s fai l u re t o fi le t i m el y Fo rm s 9 41 , Em p l o y er’ s Qu art erl y

Fed eral Tax Retu rn , fo r 1 0 co ns ecu t i ve q u art ers en d i n g M arch 2 0 0 9 th ro ug h J u n e 2 0 1 1 , an dFo rm 9 4 0 , Em p l o y er’ s An n u al Fed eral Un em p l o ym en t(FUTA) Tax Retu rn , fo r t ax y ear 2 0 1 0 , as wel l as fo r fai lu re t o p ay
an d m ak e req u i redd ep o s i t s o f t h e as s o ci at edem p lo ym en tan d t ru s tfu n dt ax es fo r al l p eri o d s ab o v e (p eri o ds ati s s u e). 2

1 Al l s ect i o n referen ces are t o th e In tern al Rev en u e Co d e i n effect atal l rel ev an t t i m es . Al l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an d Pro cedure. Al l m o n et ary am o u n t s are ro u nd edt o the n eares t d o l l ar.

2 W e u se t he t erm

“ em p l oym en tan dtru s t fu n dt ax ” t o refer t o t ax es u n d er t h e Fed eral In s u ran ce Co n tri b u t i o n s Act(FICA), t h e Fed eral Un em p l o ym en t Tax Act (FUTA), an dem

p l o y ee i n co m e t ax wi th h o l di n g . See W eb er v . Co m m i s s i on er, 1 3 8 T.C. 3 4 8 , 3 5 7 (2 0 1 2 ); St ev en s Tech . In c. v . Co m m i s s io n er, T.C. M em o . 2 0 1 4 -1 3, at* 2 7 -* 2 9 ; Ot t o ’ s E-Z Cl ean En t ers ., In c. v . Co m m i s s io n er, T.C. M em o . 2 0 0 8 -5 4 , s l ip o p at2 n . 2
.- 3
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[* 3 ] Aft er co n ces si o ns b y the p art i es , 3 th e o n l y

i s s u es rem ai ni n g fo r d eci si o n are wh et h er p et i ti o n er i s l i ab l e fo r t h e ad d i t io n s t o t ax u n d er s ect i o n 6 6 51 (a)(1 ) an d (2 ) an dfo r t h e p en al ty

u n der s ect i o n 6 6 5 6 (a). FINDINGS OF FACT So m e o f t h e fact s h av e b een s ti p u lat ed an dare s o fo u n d. Th e s t ip u l at i o n o f fact s an dth e at t ach ed ex h i b i ts are i n co rp o rat ed h erei n b y th i s referen ce. Pet i t io n er, Xi b i t m ax , LLC, i s a l i m i t edl iab i li ty co m pan y o rg an i zedan dh av i n g i t s p ri n ci p al p l ace o f b u s i n es s i n M i n n es o t a. Bru ce Po wel l fo u nd edp et i t i o ner i n 2 0 0 5 . He h as al way s b een i ts s o l e
s h areh o ld er an do ffi cer. Pet it i on er o p erat es n at i o n al l y i n t h e b u s i n es s o f d es i g n i n g
an d co n s tru ct i ng trad e s ho w d i s p l ay s . Th e n at i o n w i d e s co p e o f p et it i on er’ s b u s i n es s req u i res M r. Po wel l t o t rav el freq u en t l y t o v ari o u s co nv en t i o n s an dtrad e
s h o ws wh ere h e s up erv i s es an d co o rd i n at es the i n s t al l at i o n o f h i s d es i g ns an d d i s p l ay s. In l at e 2 0 05 , o wi n g t o t h i s freq u en t trav el , M r. Po wel l s ou g h tt o h ire an ad d it i o n al em

p l oy ee t o m an ag e p et i t i o n er’ s d ay -t o -d ay fro n to ffi ce o p erat i o n s . On

3 Pet i t i on er co n ced es thati td i dn o t s eeka co l lect i o n al t ern at i ve o r ch al l en g e th e l i en o r t h e p ro p o s edl ev y as d efect i v e o r o n p ro cedu ral g ro u n d s an dd o es n o t s eekt o d o ei th er as p arto f th i s cas e. Res p on d en tco n ced es th atp et i t i o n er was n ot p rev i o u s l y affo rd edan o p p ortu n i ty t o d i s p u t e t h e p en al ti es an d ad d i t io n s t o t ax fo r th e p eri o d s ati s s u e an d m ay d o s o as p arto f t h i s cas e.- 4
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[* 4 ] th e reco m

m en dat i o n o f h i s co ll eag u es wi th in th e co m m u n i ty , M r. Po wel l h i reda fu l l -t i m e o ffi ce ad m i ni st rat o r wh o h adab l y p erfo rm edwi th o ther s im i l arl y
s i zedb u s i n es s es i n the area. Sh e was i n i t i al l y t as k edwi th m ai nt ai ni n g p et i t i o n er’ s
acco u n t s p ay ab l e an drecei v ab l e an dtrack in g b as i c jo b co s t s . As t i m e p ro g res s ed , h o wev er, M r. Po wel l reco g n i zedh e wo u lds o o n n eedt o b eg i n ad dres s i n g p et i t i o n er’ s p ayro l l an dth e as s o ci at edem pl o ym en tan dtru s tfu n dt ax es . M r. Po wel l as s i g n edth es e du t i es t o th e o ffi ce ad m i n i s trat o r, b el i ev in g s h e was wh o l l y cap ab l e o f m an ag in g thes e n ew res p o ns i b i l i t i es , wi th o utg i v in g reg ardt o th e fact th ats h e--l i k e M r. Po wel l --h adn o ex p eri en ce i n th es e fi el d s . M r. Po wel l d i dn o t
es t ab l i s h an y

co n tro ls o r o th er m ean s fo r m o n i t o ri n g h er p erfo rm an ce. In l at e 2 0 08 th e o ffi ce ad m i n i s trat o r as s u m edp art -t i m e s t atu s , wo rk in g o n l y
o n e o r t wo d ay s a week
. Al tho u g h h er at t en d an ce h adb eco m e s p o rad i c, M r. Po wel l b el i ev eds h e was k eep in g up wi th al l o f h er jo b as s ig n m en t s . Facedwi th
u n fav o rab l e m ark et co n di t i o n s an dd i ffi cu l t i es s u s tai n i n g cas h fl o w i n th e fi rs t qu art er o f 2 0 0 9 , M r. Po wel l d i rect ed th e o ffi ce ad m i n i s trat o r t o “ d efer p aym en t ” o f p et i t i o n er’ s em

p lo ym en t an d tru s tfu n d t ax es u n t i l l at er t h at y ear, wh i ch s h e d i d
. In l at e 2 0 09 M r. Po wel l d i rect edth e o ffi ce ad m i n i s trat o r t o res u m e p aym en t
o f p et i ti o n er’ s em

pl o ym en tan d t ru s t fu ndt ax es ; s h e d i d n o t . Al th o u g h M r. Po wel l h ad , b y th i s t i m e, as s u m eds o m e o f th e ad m i ni s trat o r’ s o ffi ce du ti es --i n th e l i g h to f- 5
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[* 5 ] h er wan i n g at t en d an ce--an dh adfu l l acces s t o an do ft en rev i ewedp et i t i o n er’ s b o o k s an do n l y

ch eck i n g acco u n t , i tel ud edh i s at t en t i o n thatp et i t i o ner was
co n ti n u al l y

fai l in g t o p ay i t s em

p l o ym en tan dtru s t fu n dt ax es . Th ro u gh o u tth i s p eri o dp et i t i o n er co n t i n u ed t o p ay i t s s up pl i ers , v en d ors , an dcred it o rs wh i l e
co n ti n u i n g t o wi th h o l d em p l o ym en tt ax es fro m

i t s em p l o y ees . In 2 0 1 1 p et i t i o n er d i s ch arg edth e o ffi ce ad m in is trat or. M r. Po wel l h i red t em p o rary s t affers t o ad dres s the b ack l o g i n h er wo rk , an d h e tran s ferred ad m i n is trat i o n o f p et i t i o n er’ s p ayro l l t o an o u t s i de ag en cy . Th e t em p orarys t affers b ro u gh t t o M r. Po wel l ’ s at t en t io n th ei r d i s co v ery o f p et i t i o n er’ s co n t i n uedt ax
n o n co m p l i an ce. Des p i t e t h i s d i s co v ery , M r. Po wel l d i rect edthe s t affers t o fo cu s
o n o th er i s s u es an d d ecl i n ed t o ad dres s p et it i on er’ s t ax n o n co m p l i an ce. It w as n otu n t i l 2 0 1 3, wh en res p o n d en tco n tact edp et i ti o n er’ s o u t s i d e p ayro l l ag en cy

an dreq u es t edp et i t i on er’ s d el i n qu en t fi l i ng s , th at p et i t io n er m ad e
an effo rt t o co m e i nt o fu l l co m p l i an ce wi th i ts t ax fi l i n g, b u t n o ti t s t ax p aym en t , o b l i g at i o ns . OnJ an u ary

2 4 , 2 0 1 4 , p et i t i o n er fi l edFo rm 9 4 1 retu rn s fo r i t s fi rs t
an d s eco n dqu art ers o f 2 0 11 . OnAu g u s t5 , 2 01 4 , p et i ti o n er fi l edi t s rem ai n i n g Fo rm 9 4 1 retu rn s fo r al l quart ers o f 2 0 0 9 an d2 01 0 an di t s Fo rm 9 4 0 fo r y ear 2 0 1 0 . As p et i ti o n er fi l edth es e ret u rn s , res p o n d en tas s es s edth e t ax there rep o rt ed
an d ap p l i edad d i t i o ns t o t ax an dp en al t i es u n d er s ect i on s 6 65 1 (a)(1 ) an d(2 ) an d- 6
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[* 6 ] 6 6 5 6 . Whi l e p et i t i o ner h as m ad e s o m e p aym en t s t o w ardth es e accu m u l at ed l i ab i l i t i es t o d at e, each p eri odati s s u e s ti l l carri es a b al an ce. OnJ u ly 2 9 , 2 0 14 , res p o nd en ts en ta Let t er 3 1 72 , No t ice o f Fed eral Tax Li en Fi l i n g an dYo u r Ri g h tt o a Heari n g Un d er IRC 6 3 2 0 , wi th res p ect t o p et i ti o n er’ s
u np ai dl i ab i l i t ies fo r t h e fi rs t an ds eco n dqu art ers o f 2 0 1 1 . OnSep tem b er 8 , 2 0 1 4 , res p o n d en t m ai l edp et i t i o n er a Let t er 1 0 5 8 , Fi n al No t ice--No t i ce o f In t en tt o Lev y
an d No t i ce o f Yo u r Ri g h tt o a Heari n g , fo r t h e s am e. OnOct o b er 2 1 , 2 0 14 , res p o n d en t m ai l edp et i t i o n er an o th er Let t er 1 0 5 8, thi s o n e s eek i n g t o co l l ectb y l ev y p et i ti o n er’ s u np ai d2 0 0 9 an d 2 0 1 0 l i ab i l i t i es . In res p o n s e t o each o f t h es e l et t ers , p et i t i o ner fi l eda t i m el y Fo rm 1 2 1 5 3 , Req ues t fo r a Co l l ect i o n Du e Pro ces s o r Equ i v al en tHeari n g . In i t s req u es t p et i t i o n er s o u g h to nl y

ab at em en t o f t h e as s es s edp en al ti es an dad d i t i o n s t o t ax . OnDecem

b er 5 , 2 0 14 , a s et t l em en to ffi cer (SO) wi th res p o n d en t ’ s Ap peal s Offi ce
co n du ct ed a face-t o -face co l lect i o n du e p ro ces s (CDP) h eari n g wi th p et i t i on er’ s rep res en t at i v e. Th e SO d et erm i n edp et i t i o n er was i n el i g i b l e fo r t h e req u es t ed rel i ef, as p et it i on er was u nab l e t o s h o w i t s fai l u res were g ro u n d edi n reas o n ab l e
cau s e. OnJ an u ary 1 2 , 2 0 1 5 , th e Ap p eal s Offi ce i ss u ed p et i t i o n er a n o ti ce o f d et erm i n at i o n s us t ai n i n g th e co l l ect i o n act io n s , ad d i t i o n s t o t ax , an d p en al t i es .- 7
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[* 7 ] OPINION I. J u ri s d i ct i o n an dSt an d ardo f Rev i ew Sect io n s 6 3 2 0 an d6 3 3 0 req u i re t h e Co m m i s s i o n er t o n o t i fy a t ax p ay er i f h e h as fi l eda l i eno r i n t en d s t o l ev y o n th att ax p ay er’ s p ro p ert y . Th e n ot i ce m u s t i n fo rm th e t ax pay er o f h i s o r h er ri g h t t o a CDP h eari n g reg ard i n g th e fi l i n g o f a l i eno r t he p ro p o s edco l l ect i o n act i o n . Secs . 6 3 3 0 (a), 6 3 2 0 (a). In a CDP h eari ng t ax p ay ers m ay rai s e an y

rel ev an ti s s u e o r req u es t the co n s i d erat i o n o f a co l l ect i o n al t ern at i v e. Sec. 6 3 3 0 (c)(2 )(A). Tax p ay ers m ay n o tch al l en g e t h e ex i s ten ce o r
am ou n to f t h e u nd erl y i n g t ax l i ab il i ty u n les s they

d i d n oto th erwi s e h av e an
o p p o rtu ni ty

t o d o s o . Sec. 6 3 3 0 (c)(2 )(B). On ce t h e Co m m i s s i o ner i s s u es a n o t i ce
o f d et erm i nat i o n atth e co n cl u si o n o f t h e CDP h eari n g , th e t ax p ay er m ay s eek ju d i ci al rev i ew b y

fi l i n g a p et i t i o n wi th th i s Co u rt . Sec. 6 3 3 0(d ). Wh en th e u nd erl y i n g t ax l i ab i l i ty was p ro perl y

ati s s ue i n th e CDP h eari n g , we rev i ew t h e Co m

m i ss io n er’ s d et erm in at i o n d e n o v o . Seg o v . Co m m i s s i on er, 1 1 4 T.C. 6 0 4 , 6 1 0 (2 0 0 0 ). Res p o n d en tco nced es th atp et i t i o n er i s en t it l edt o ch al l en g e i t s u n derl y i n g l i ab i l it i es fo r t h e p en al t ies an dad d i t i o n s t o t ax . Acco rd in g ly , we rev iew p et i ti o n er’ s l i ab i l i t ies d e n o v o .- 8
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[* 8 ] Pet i t i o ner co n ced es i tfai l edt o fi l e t im el y an dfai l ed t o p ay

an dd ep os i tth e req u i redem

p l o ym en tan dtru s tfu ndt ax es . Pet i t i on er m ai nt ai n s i t s fai l u res were du e t o reas on ab l e cau se an db el i ev es th e as ses s edp en al t i es an dad d i t i o n s t o t ax are i n ap p ro p ri at e. Pet i t i o n er b ears th e b u rd en o f p ro v i ng reas o n ab l e cau s e an d
es t ab l i s h in g th atth e p en al t i es o r ad d i t i on s t o t ax are i n ap pro p ri at e. See Ru l e 1 4 2 (a); Hi g b ee v . Co m

m i s s i on er, 1 1 6 T.C. 4 3 8 , 4 47 (2 0 0 1 ). II. Sect io n 6 6 5 1 (a) Ad d i t i o n t o Tax : Fai l ure To Ti m el y Fi l e Sect io n 6 6 5 1 (a)(1 ) i m

p o s es up o n t ax p ay ers an ad d i t i o n t o t ax fo r fai l u re t o fi le a t i m el y

retu rn . Th e ad di t i o n t o t ax wi l l n otap p l y i f t h e t ax p ay er s h o ws i t s fai l u re was du e t o reas o n ab l e cau s e, n o twi l l fu l n eg l ect . Id . A t ax p ay er d em o n s trat es reas o nab l e cau s e wh en i ts h o ws that , d es p i te ex erci s i n g o rd i n ary b u s i n es s care an dp ru d en ce, i t was u n ab l e t o fi l e t he ret u rn o n t i m e. Sec. 3 0 1 .6 6 5 1 -1 (c)(1 ), Pro ced . & Ad m i n . Reg s . Th e o b li g at i o n t o fi l e t i m el y i s th e t ax p ay er’ s , u n am

b i gu o u s an dn o n d el eg ab l e, an drel i an ce o n an ag en tg en eral l y wi l l n o tam o u n tt o reas o n ab l e cau s e fo r u n t i m el y fi l in g . Un i t ed St at es v . Bo y l e, 4 6 9 U.S. 2 4 1 , 2 4 9 -2 52 (1 9 8 5). Tax p ay ers b ear a h eav y b u rd enwh en at t em

p t i n g t o p ro v e reas o n ab le cau s e fo r fai lu re t o fi l e t i m el y . Id . at2 45 ; s ee Bo l es Tru ck i n g In c. v . Un i t edSt at es , 7 7 F.3 d2 3 6 , 2 4 1 (8 th Ci r. 1 9 9 6 ).- 9
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[* 9 ] Pet i t i o ner co n ced es i tfai l edt o fi l e t im el y retu rn s fo r al l p eri o d s ati s s u e. Pet i t io n er arg u es , h o wev er, i th adreas o n ab l e cau se as i th adrel i edo n i t s em p l o y ee fo r t h e t im el y

p rep arat i o n an dfi l i n g o f Fo rm s 9 4 1 an d9 4 0
. M r. Po wel l , as p et i ti o n er’ s s o l e o wn er an do ffi cer, was aware o f p et i t i o n er’ s
em pl o y m en tan dtru s tfu n dt ax fi l i n g o b l i g at i o n s b u twas u n fam i l i ar wi th th e p ro ces s an dp ro cedure. Des p i t e h i s o wnu n fam i li ari ty , h e t as k edan ad m i n i s trat i v e
em pl o y ee wi th the dut y

o f p rep ari n g an dfi l in g p et i t i o n er’ s t ax retu rn s . Th i s
em pl o y ee d i dn o th ol dh ers el f o u tas h av i n g an y cred en t ial s , ex p eri en ce, o r trai n in g i n th e p rep arat i o n , fi l i n g , o r p aym en to f em p l o ym en tan d tru s t fu n dt ax retu rn s . M r. Po w el l, h owev er, b el i ev eds h e wo ul db e up t o th e t as kd es p it e h er l acko f kn o w-h o w an d ex p eri en ce. Pet i t i o n er d i dn o t s uperv i s e o r m o n i t o r t h e qu al i ty o f th e em

p l o y ee’ s wo rkan dh adn o s y st em i n p l ace t o d o s o . Th e em pl oy ee wo rk edp artt i m e--“ o nce o r t wi ce a week ”--d u ri ng th e p eri od s i n i ss u e. Al th o u g h th e em p l o y ee was o ft en the o n l y wo rk er m an ag i n g p et i t i o n er’ s fro n t -o ffi ce affai rs , p et i t i o n er was n o tco n cern edwi th h er i rreg u l ar at t en d an ce an d
co n ti n u edt o b el i ev e s h e wo u l db e cap ab l e o f ex ecu t i n g h er co l l ect iv e du t ies , n o t ju s t th e m an ag em en to f p et i t io ner’ s em pl o ym en t an dtru stfu n d t ax fi l i n gs b u tal s o th e ad m in i s trat i on o f n earl y ev ery o th er as p ecto f i t s d ay -t o -d ay fro n to ffi ce
o p erat i o n s .- 1 0 -

[* 1 0 ] Pet i t i o ner was b y n o m ean s d i s ab l edfro m en su ri n g i twas m eet i n g i t s
s t atu to ry du t i es . Itwas n o tren d eredi n cap ab l e o f fi l in g b y a s eri es o f fact o rs l arg el y b ey o n d i t s co n tro l
. See Bo y l e, 4 6 9 U.S. at2 4 8 n .6 . Pet i t i o n er’ s fai l u re t o fi le t i m el y

res u l t edfro m i t s rel i an ce o n an u n qu al i fi edp art -t i m e em p l oy ee. Sup erv i si o n o f t h e o u tp ut an d qu al i ty o f an em p l o y ee’ s wo rk

p ro du cti s a fact o r wh o l l y u nd er an em

p l o y er’ s co n tro l . Pet i t i o n er’ s fai l u re t o ad equ at el y o v ers ee i t s
em pl o y ee’ s p erfo rm an ce--o r, h ere, t o en s u re t h atth e em p l o y ee was s i m

p l y p erfo rm i n g --was o b

ject i v el y u n reas o n ab l e an di s i n d i cat i v e o f a l acko f b u s i n es s
care an dp ru d en ce i f n o t reck l es s i n d i fferen ce. W e s us t ai n res p o nd en t ’ s d et erm i n at i o n as t o th e s ect i o n 6 6 5 1 (a)(1 ) ad d it i on s t o t ax . III. Sect io n 6 6 5 1 (a)(2 ) Ad d i t i o n t o Tax : Fai l u re To Ti m el y Pay Sect io n 6 6 5 1 (a)(2 ) i m

p o s es up o n a t ax p ay er an ad d i t io n t o t ax fo r fai l i n g t o p ay t ax es wh en du e. Li k e t h e ad d i t i o n fo r fai l u re t o fi l e t i m el y , th i s ad di t i o n wi l l
n o tb e ap p li edi f t h e t ax pay er es t ab l i s hes reas o n ab l e cau s e fo r i t s fai l u re. Sec. 6 6 5 1 (a)(2 ). To s h o w reas on ab l e cau s e, t h e t ax p ay er m u sth av e ex erci s edo rd i n ary b u s i n es s care an dp ru d en ce i n m ak i n g ad equ at e p ro v i s io n fo r i t s reas on ab l y fo res eeab l e t ax o b l i g at io n s an d h av e t ak en th e ap p ro p ri at e an dp ru d en ts t ep s
n eces s ary t o en s u re co m

p l i an ce t herewi th . Sec. 3 01 .6 6 5 1 -1 (c)(1 ), Pro ced . & Ad m i n . Reg s. Wh en p aym en to f t ru s tfu n dt ax es i s ati ss u e, t ax p ay ers m ay b e h el d- 1 1 -

[* 1 1 ] t o a h ei g h t en eds t an d ard . Id . s ub p ara. (2 ); s ee Di am o n d Pl at i ng Co . v . Un i ted St at es , 3 9 0 F.3 d1 03 5 , 1 0 3 8 (7 th Ci r. 2 00 4 ); Co n certSt ag i n g Serv s ., In c. v . Co m m i s s i o n er, T.C. M em o . 2 0 1 1 -2 3 1 , s l i p o p . at1 2
. Pet i t i o ner co n ced es i tfai l edt o , an dh as y ett o, fu ll y p ay i t s em p l oym en tan d tru s tfu n dt ax l iab i l i t i es fo r t h e p eri o d s ati s s u e. As b efo re, p et i t io n er’ s reas o n ab l e
cau s e arg u m en t t ak es the s h ap e o f rel i an ce o n i t s em p lo y ee. An das b efo re, rel i an ce o n an u n d ers up erv i s ed , u n d erq u al ifi ed , p art -t im e em p l oy ee i s i n s u ffi ci en t t o es t ab l i s h o rd i naryb u si n es s care an dp ru d en ce. M r. Po wel l t es t i fi edth at , o n atl eas to n e o ccas i o n , h e d i rect edh i s em p l o y ee
n o tt o rem i t --t o “ d efer”--p aym en t o f p et i t i o n er’ s em pl o ym en t an dtru stfu n dt ax es . Th i s was d o n e i n earl y

2 0 09 wh i l e p et i t i o n er was faci n g cas h fl ow p ro b lem s du ri n g
a n at i o n al eco n o m i c reces si o n. Lat er th at y ear, h o wev er, h e i n s tru ct ed h i s
em pl o y ee t o res u m e m ak i n g t i m el y p aym en t s o n p et i t i o n er’ s t ax o b l i g at i o ns , b u t th e p aym en t s n ev er res u m ed
. Du ri n g al l p eri o ds ati ss u e p et i t i o n er co n t i n u edt o wi th h o l dem p l o ym en t t ax es fro m

the p ay ch eck s o f i t s em

p l o y ees an dco n t i n u edt o p ay i t s v en d o rs an d cred i t o rs . Al th o u gh h e h ad acces s t o , an dwo u l dfreq u en t ly rev i ew, p et i t i o n er’ s
o n l y b an k acco u n t, M r. Po wel l n ev er n o t i ced , o r ch o se t o o v erl o ok , th e fact th at- 1 2 -

[* 1 2 ] p et i t i o n er’ s em

pl o ym en tan dtru s tfu n d t ax p aym en t s were n o t b ei n g drawn fro m i t s acco u n t
. Wh en p et i t i o n er’ s n o n co m p l i an ce was b ro u g htt o i t s at t en t i o n i n 2 0 1 1 , p et i t i o n er d ecl i n edt o t ak e an y rem ed i al act io n s . Pet i t i o n er t o o kn o act i o n u n t i l 2 0 1 4 . To d at e p et i ti o n er h as fai l edt o fu l l y p ay th e p ri n ci p al b al an ces fo r t he p eri o d s ati s s ue. To th e ex t en tth at p et i ti o n er at t em p t s t o p res en th ard s h ip o r i n ab i l i ty t o p ay
as reas o n ab l e cau s e, p et i t i o n er fai l s t o m eeti t s b u rd en o f p ro o f. Pet i t i o n er o ffered
o n l y the u n co rro b o rat edt es t i m o n y o f i t s s o l e o ffi cer an ds h areh o l d er as t o t h e
n atu re o f p et i t i o n er’ s fi n an ci al s t atu s du ri n g t h e p eri o d s ati s s ue. Al tho u gh M r. Po wel l cred i b l y t es t i fi edth atp et i t i o n er s u ffered du ri n g th e eco n o m i c d o wn tu rn o f th e p eri o d s ati s s u e, t hi s d o es n o tal on e es t ab l i s h reas o nab l e cau s e. Du ri n g th e p eri o d s ati ss u e p et i t i o n er was ab l e t o co nt i n u e o p erat i o n s , m ark eti t s s erv ices t o cl i en ts , an dp ay i t s v en d o rs , cred i t o rs , an dem p l o y ees . Pet i t io n er’ s fai l u re t o co m p l y wi t h i t s em

p l o ym en tan d tru s t fu n dt ax o b l i g at i o n s
res u l ted fro m

a ch o ice t o fo cu s o n b u s i n es s m at t ers rat her t h an t ax co m p l ian ce. Th ere was n o o rd i n ary

an dp ru d en tcare o r co n s i d erat i on t ak en b y p et i t i o n er t o
en s u re i tco m

p li edwi th i t s kno wnFed eral t ax o b l i g at i o n s . W e s u s t ai n th e ad d it i o n s t o t ax u n d er s ect i on 6 6 5 1 (a)(2 ).- 1 3 -

[* 1 3 ] IV. Sect io n 6 6 5 6 Pen al t y : Fai lu re To Dep os i t Sect io n 6 6 5 6 (a) i m

p o s es a p en al ty

fo r a t ax p ay er’ s fai l u re t o m ak e t im el y d ep os i t s o f t ax u n l es s th e fai l u re was du e t o reas o n ab l e cau s e an dn o twi l l fu l
n eg lect . Inev al u at in g reas o n ab l e cau s e u nd er s ect i o n 6 6 5 6 , th e Co u rtl oo k s t o th e
an al o g o us p ro vi s io ns o f s ect i o n 6 6 5 1 (a)(2 ). See St ev en s Tech s ., In c. v . Co m m i s s i o n er, T.C. M em o . 2 0 1 4 -1 3 , at* 3 0 . Pet it i on er ad m i t s i tfai l edt o m ak e i t s req ui redd ep os i t s fo r t he p eri o d s ati s s u e. Un d er t h e fact s o f t h i s cas e, i n cl u d i n g th e al l eg edm i s co m m u n icat i o n b et ween M r. Po wel l an d h i s o ffi ce ad m i n is trat o r, an dth e p o o r p erfo rm an ce o f th e s am e, p et i t i o n er h as n o tes t ab l i s h ed
reas on ab l e cau s e fo r i t s fai l u res . W e s us t ai n th e s ect i on 6 6 5 6 p en al t i es . See M cNai r Ey e Ct r. In c. v . Co m m i s s i o ner, T.C. M em o . 2 0 1 0 -8 1
. In th e l i g h to f o ur h o l d i ng s ab o v e, an dreco g n izi n g t h e co nces s i o n s b et ween th e p art i es , we s u s t ai n th e n o ti ce o f d et erm i nat i on an dth e rel at edco l lect i o n act i on s . W e h av e co n si d eredal l th e o th er arg u m en t s m ad e b y the p art i es , an dt o th e ex t en tn o t d i s cu s s edab o v e, fi n dtho s e arg u m en t s t o b e i rrel ev an t , m oo t , o r wi th o u tm eri t
.- 1 4 -

[* 1 4 ] To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t ered fo r res p o n den t
.