TAX COURT OPINION

Case: John K. & Carrie W. Rester
Docket Number: 13179-10SL
Judge: Goeke
Opinion Type: bench
Filed: 05/16/2012
Pages: 10

UNITED STATES TAX COURT WASHINGTON, DC 20217 JOHN K'. AND CARRIE W. RESTER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) Docket No. 13179-10SL. Pursuant to Rule 152, Procedure, it is O R D E R Tax Court Rules of Practice and ORDERED that the Clerk of the Court shall transmit.herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph Robert Goeke at New Orleans, Louisiana, on April 19, 2012, containing his oral findings of the trial. fact and opinion rendered at the conclusion of In accordance with the oral fact and opinion, a decision will be entered under Rule 155, Tax Court Rules of Practice and Procedure. findings of (Signed) Joseph Robert Goeke Judge DATED: Washington, D.C. May 16, 2012 BRWD BY 1 7 2012 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BENCH OPINION BY JUDGE JOSEPH ROBERT GOEKE RESTER v. COMMISSIONER DOCKET NO 13179-10SL April 19, 2012 3 THE COURT: The Court has decided to render oral findings of fact and opinion in this case, and the following represents the Court's oral findings of fact and opinion: The oral findings of fact and opinion shall not be relied upon as precedent in any other case. The present case is before the Court pursuant to our jurisdiction to review collection actions by Respondent as provided in Section 6330(d). This case is also before the Court pursuant to the provisions of 7463 of the Internal Revenue Code in effect at the time the petition was filed. Pursuant to Section 7463(c) the decision to be entered is not reviewable by any other Court. This bench opinion is rendered pursuant to Section 7459 of the Internal Revenue Code and Rule 152 of the Tax Court Rules of Practice and Procedure. The burden of proof in this case is on the Petitioner pursuant to Rule 142 of the Tax Court Rules of Practice and Procedure, and Code Section 7491. However, the burden of proof does not play a role in Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4 the resolution of the case, as the factual record in the case is sufficient for the Court to determine the issue present. The parties agree that the issue presented in this collection case is whether the Petitioner 1s liable for the failure to file addition to tax under Section 6651(a) (1). The parties have stipulated certain of the facts in the case, and testimony was heard at trial. At the time the petition was filed the Petitioners resided in Gulf Port, Mississippi. Throughout the year before the Court Petitioners resided in Gulf Port. Petitioners filed a joint federal income tax return for 2005. On June 8*, 2009, Respondent sent to Petitioners a Final Notice of Intent to Levy, and Notice of Your Right to a Hearing. On July 20*, 2009, the Petitioners submitted a Form 12153, Request for a Collection Due Process or Equivalent Hearing. A telephone conference was held by Respondent's settlement officer and Petitioners' authorized representative, Mr. Heath. Subsequent to Respondent's receipt of Petitioners' request for a hearing. The administrative record of the subsequent Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 actions by the settlement officer was stipulated and made a part of the trial record. The parties have also stipulated that Hurricane Katrina hit the Gulf Coast of Mississippi on August 29th, 2005, and that the Petitioners and their tax return preparer, Mr. Heath, resided in that area. The parties have also stipulated that Mr. Heath is a certified public accountant, and the testimony at trial established that Mr. Heath was a qualified tax accountant and return preparer at 2005, and that he had provided tax advice to the Petitioners for decades prior to 2005. The Court finds that the Petitioners reasonably relied upon the tax advice they received from Mr. Heath regarding their 2005 federal income tax return. The parties have stipulated that the office building in which Mr. Heath prepared income tax returns and maintained the records was completely destroyed by the hurricane. Under Notice 2006-20 and News Release 2006- 135, all taxpayers affected by Hurricane Katrina were given until October 16th, 2006, to file for 2005 federal income tax returns. On October 19th, 2006, Respondent received Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Petitioners' request for an extension of time to file the 2005 federal income tax return. Petitioners filed this request based upon the recommendation of Mr. Heath. Also based upon the recommendation of Mr. Heath, Petitioners did not make a payment with this request for an extension of time to file their federal income tax return for 2005. The Respondent granted Petitioners' request for an extension of time to file their federal income tax return for 2005, and established a new due date for the return of April 16*, 2007. On April 20 , 2007, the Petitioners submitted a $75,000 payment based upon Mr. Heath's estimate of Petitioners' income tax liability for 2005. This payment was in addition to taxes that had been withheld relative to Petitioners' 2005 income, and provided for total income tax payments of roughly $90,000. On the joint federal income tax return filed by the Petitioners on July 26, 2008, the Petitioners reported income taxes due in the amount of $87,892, which was less than the total amount having previously been paid. Respondent assessed additions to tax and interest in the following amounts regarding Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 7 Petitioners' 2005 federal income tax. Failure to file addition to tax under Internal Revenue Code Section 6651(a) (1) in the amount of $18,182.25. An estimated tax penalty under Internal Revenue Code Section 6654 in the amount of $248.56, and interest for the late payment of federal income tax in the amount of $4,955.72. During the conference with Respondent's settlement officer, Petitioners' representative, Mr. Heath, challenged the assessment of the failure to file addition to tax under Section 6651(a) (1), regarding the 2005 federal income tax liabilities of the Petitioners. The only issue remaining for resolution relative to the collection due process case of Petitioners' 2005 federal income taxes is the addition to tax. Petitioners concede that they are liable for the interest and the estimated tax penalty under Section 6654. The parties' respective positions concerning the addition to tax are that Respondent maintains that the Petitioners failed to file their income tax return on time and failed to make a payment of the taxes due based upon the extended return date of October 16th 2006. Heritage Reporting Corporation (202) 628-4888 8 Petitioners maintain that the error in failing to pay the taxes on October 16*, 2006, was based upon the advice of Mr. Heath, and that Mr. Heath is a qualified tax accountant and it was reasonable for the Petitioners to rely upon this advice. There's no dispute that the return was filed subsequent to the extended date for the victims of Hurricane Katrina, and that the payment of the return was not timely. It's undisputed that the return was due on April 16*, 2007. While the return was filed in July of 2008, Petitioners had made a payment on April 20*, 2007, which Mr. Heath estimated would satisfy their federal income tax obligations. The question is whether the Petitioners were reasonable in relying upon Mr. Heath's advice that it was appropriate for them to forego payment until April, 2007. Respondent argues that the Petitioners did not exercise ordinary care and prudence, and that . they are not entitled to rely upon the reasonable cause exception to the failure to file addition to tax under Section 6651(a) (1). The testimony at trial establishes that Mr. Heath had an overwhelming number of returns to file and sort through, because of the loss of records 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 9 caused in his practice as a result of the hurricane. He testified that he had attempted to ensure that any clients who had tax liabilities properly paid the tax liability. He testified that he made an error in determining that those payments did not have to be made until April 16*, 2007, and that he did not realize the payments were required on October 16*, 2006. Respondent maintains that Petitioners' reliance upon Mr. Heath's advice does not provide reasonable cause and Respondent cites the case of United States v. Boyle, 469 U.S., 241,252 (1985). The case of United States v. Boyle and its applicability to reasonable cause in the context of Section 6651(a) (1) and Treasury Reg. Section 301.6651- 1(1) of the Procedure and Administrative Regulations, is discussed extensively in the case of the tate of La Meres v. Commissioner, 98 T.C.)p 294 (1992). In that case the Tax Court held specifically as follows: "If, as a direct result of reliance on such advice, the taxpayer fails to meet its filing obligation, the taxpayer should not be held liable for the addition to tax under Section 6651(a) (1) because the failure to file timely was due to reasonable cause." The advice referenced in the quoted language Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 10 is the advice of a qualified tax professional, relied upon in good faith, with respect to the legal question of when a federal income tax return is due. The Court in La Meres distinguishes the Supreme Court opinion in Boyle by making a distinction between the reliance upon the tax professional to perform the function of filing the return and the reliance upon advice of a tax professional as to the due date of a return as a legal question. In the present case the question of when the return was due is very analogous to the question of when the return was due in La Meres, which was a complicated problem based on the application of Section 20.6081-1(a), of the estate tax regulations. In the present case the extended due date of returns, as a result of the hurricane, and the subsequent confusion caused by the hurricané, created a significant question about when Petitioners' income tax return was due, and their reliance upon Mr. Heath's advice about when the return was due was reasonable, and we find that in conformity with La Meres, Petitioners had reasonable cause for their failure to file, and that the addition to tax under Section 6651(a) (1) is not applicable, based upon established Tax Court precedent. Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 11 Because Petitioners remain liable for interest and the estimated tax .addition to tax, Respondent's collection action will be sustained for a reduced liability. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 9:46 a.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888