Opinion ID: 688440
Heading Depth: 1
Heading Rank: 2

Heading: Additions to Tax for Negligence and Failure to File

Text: 9 The Tax Court's upholding of additions to tax is dependent on factual findings, and is therefore reviewed for clear error. See United States v. Derr, 968 F.2d 943, 945 (9th Cir. 1992). Section 6651(a)(1) of the Code allows for penalties if a taxpayer fails to file a timely return, unless the taxpayer shows that the failure is due to reasonable cause and not due to willful neglect. Reasonable cause is a narrow justification where, for example, a taxpayer demonstrates that he exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time. Conklin Bros. of Santa Rosa, Inc. v. United States, 986 F.2d 315, 317 (9th Cir. 1993) (quoting 26 C.F.R. Sec. 301.6651-1(c)(1)). 10 The Tax Court did not clearly err in finding that the Rakosis' conduct did not measure up to the Conklin standard. Attila delayed in filing the 1987 return solely because he had been unable to ascertain why the IRS had charged him with filing frivolous returns in 1984 and 1985, and he did not wish to repeat the error. He chose this dilatory course of action, despite his knowledge of the timely filing requirement, instead of seeking assistance from a competent source and timely filing. Given the Tax Court's knowledge of the Rakosis' history with the IRS, it could certainly have found that they were less than prudent in their actions, and that this cause was therefore less than reasonable. 11 Section 6651(a)(1) of the Tax Code imposes further penalties on a taxpayer when any part of an underpayment of tax ... is due to negligence (or disregard of rules or regulations) .... Negligence is here defined as a lack of due care or failure to do what a reasonable and prudent person would do under similar circumstances. Allen v. C.I.R., 925 F.2d 348, 353 (9th Cir. 1991). 12 Again, the Tax Court did not clearly err in finding that the Rakosis were negligent within the meaning of section 6653. The Rakosis claimed to have used a portion of their home solely to conduct their litigation of the first deficiency proceeding. On their 1987 return they claimed at least $742 in itemized deductions, characterizing this use of their home as a business expense. IRS disallowed the deductions pursuant to clear case law, and part of the Rakosis' 1987 deficiency resulted from this disallowance. 13 The Tax Court found that the Rakosis were not reasonable and prudent in attempting to claim the deduction, and so were negligent within the meaning of section 6653(a). We cannot say that the Tax Court clearly erred in its judgment. See Rapp v. Commissioner, 774 F.2d 932, 935-36 (9th Cir. 1985). We therefore affirm on the issue of additions to tax.