Source: https://www.currentfederaltaxdevelopments.com/blog/2016/9/9/taxpayers-dementia-possible-reasonable-cause-for-late-filing-but-failure-of-poa-holder-to-act-would-not-be
Timestamp: 2019-04-21 12:51:15+00:00

Document:
An IRS memorandum discusses the potential facts that would and would not be relevant in determining if a taxpayer can have failure to file and failure to pay penalties abated for reasonable cause (CCA 201637012).
The power of attorney’s failure to insure the return was timely filed creates reasonable cause for the late filing on behalf of the taxpayer.
However, the author of the memorandum suggested that before any of these issues were considered, the IRS should consider if the taxpayer qualifies for the “First Time Abatement” (FTA) relief. That relief is found in Internal Revenue Manual 20.1.1.3.6.1.
The taxpayer has filed, or filed a valid extension for, all currently required returns and paid, or arranged to pay, any tax due.
The relief applies to failure to file penalties (IRC §6651(a)(1), IRC §6698(a)(1) and IRC §6699(a)(1)), failure to pay penalties (IRC §6651(a)(2) and IRC §6651(a)(3)) and failure to deposit penalties (IRC §6656).
Thus, if the taxpayer had been compliant in the prior three years, the taxpayer would appear to qualify for FTA relief and the question of reasonable cause would not arise.
But if the taxpayer did not qualify for FTA relief, the author of the memorandum noted that the dementia may have created a situation where the taxpayer would qualify for reasonable cause relief.
The memorandum notes that if the taxpayer can show she was suffering from dementia during the early part of the year when she should have filed the return she failed to file, and was therefore unable to handle her financial affairs, that would support a finding of reasonable cause for the late filing. That determination is a factual one.
However, the memorandum rejects the idea that the failure of the holder of the power of attorney to act could serve as an alternative reasonable cause.
In United States v. Boyle, 469 U.S. 241 (1985), the Supreme Court opined that Congress placed the burden of prompt filing of tax returns on the taxpayer, not on some agent or employee of the taxpayer. The Court rejected the argument of an estate’s executor that the estate should be excused from the addition to tax for late filing under section 6651(a)(1) because it relied in good faith on an attorney to timely file the return. The Court held that “[t]he failure to make a timely filing of a tax return is not excused by the taxpayer’s reliance on an agent, and such reliance is not “reasonable cause” for a late filing under § 6651(a)(1).” 469 U.S. at 252.
Thus, if she cannot show that she was suffering from dementia and unable to handle her affairs, the fact that another person who could have acted failed to do so would not represent reasonable cause.

References: §6651
 §6698
 §6699
 §6651
 §6651
 §6656
 v. 
 § 6651