Opinion ID: 513943
Heading Depth: 2
Heading Rank: 2

Heading: The Section 6651 Addition to Tax

Text: 41 In addition to contesting the Tax Court's section 66(c) determination, Taxpayer attacks the validity of the Tax Court's finding that the Appellee's assessment of a delinquency penalty under section 6651(a)(1) was proper. Title 26, United States Code, Section 6651(a)(1) provides in pertinent part: 42 Sec. 6651. Failure to file tax return or to pay tax 43 (a) Addition to the tax. In case of failure-- 44 (1) to file any return required under authority of subchapter A of chapter 61 (other than part III thereof), subchapter A of chapter 51 (relating to distilled spirits, wines, and beer), or of subchapter A of chapter 52 (relating to tobacco, cigars, cigarettes, and cigarette papers and tubes), or of subchapter A of chapter 53 (relating to machine guns and certain other firearms), on the date prescribed therefor (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, there shall be added to the amount required to be shown as tax on such return 5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate[.] 45 Reasonable cause has been defined by regulation: If the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time, then the delay is due to a reasonable cause. 26 C.F.R. Sec. 301.6651-1(c)(1) (1988). The Internal Revenue Service has identified specific causes for failure to timely file a return that it considers to constitute reasonable cause. These causes include: 46 (1) unavoidable postal delays; 47 (2) the taxpayer's timely filing of a return with the wrong IRS office; 48 (3) the death or serious illness of the taxpayer or a member of his immediate family; 49 (4) the unavoidable absence of the taxpayer; 50 (5) destruction by casualty of the taxpayer's residence, records or place of business; 51 (6) the taxpayer's reliance on the erroneous advice of an IRS officer or employee; 52 (7) the failure of the IRS to furnish the taxpayer with the necessary forms in a timely fashion; 53 (8) the inability of an IRS representative to meet with the taxpayer when the taxpayer makes a timely visit to an IRS office in an attempt to secure information or aid in preparation of a return; 54 (9) the taxpayer's inability to obtain necessary records for determining amount of tax liability for reasons beyond his control; and 55 (10) the taxpayer's failure to file is based upon his reasonable reliance upon the advice of a tax advisor that the return need not be filed. 56 Internal Revenue Manual (CCH) Sec. 4562.2 (Feb. 25, 1987); see also Internal Revenue Manual (CCH) p 1303-53, Policy Statement P-2-7 (December 29, 1970). 57 In accordance with section 6651(a)(1), the Appellee assessed against Taxpayer an additional tax of $14,801.08 as a penalty because Taxpayer had failed to file her 1975 tax return until November 29, 1976, more than seven months late. The Appellee had concluded that reasonable cause did not exist as of the prescribed filing date, April 15, 1976, which would have excused Taxpayer's delinquency. Taxpayer challenged this assessment before the Tax Court claiming that the combined effect of her continuing marital problems with Morgan, her lack of knowledge of the items of income received by Morgan in 1975 and the pressure she received from Ragland concerning her husband's affairs, constituted reasonable cause for failing to file before April 15, 1976. The Tax Court rejected her arguments and, with the following brief statement, discussed the basis for its decision sustaining Appellee's penalty assessment: 58 As stated earlier, petitioner knew, or should have known, that Morgan received income from his real estate transactions which should have been reported not only by Morgan but by herself as community income. She was aware that a tax liability existed, as evidenced by a statement contained in her Petition for Divorce. She also was aware of the income produced by her own real estate efforts. While we sympathize with petitioner's plight and emotional distress, most (if not all) of the problems encountered by her were subsequent to the required filing date (April 15, 1976). 59 Taxpayer argues strenuously on appeal that the Tax Court erred in its determination of the reasonable cause issue and claims that such determination, in light of the testimony presented at trial, is unjustifiable. In reviewing this finding by the Tax Court, we are guided by the Supreme Court's declaration that whether the elements that constitute reasonable cause are present in a given situation is a question of fact, but what elements must be present to constitute reasonable cause is a question of law. United States v. Boyle, 469 U.S. 241, 250 n. 8, 105 S.Ct. 687, 692 n. 8, 83 L.Ed.2d 622 (1985). It is well-settled that in order to avoid the penalty prescribed by section 6651(a), Taxpayer bears the heavy burden of proving that the failure did not result from willful neglect, and that the failure was due to reasonable cause. 26 U.S.C. Sec. 6651(a)(1). Boyle, 469 U.S. at 246, 105 S.Ct. 690. In this case, willful neglect is not at issue. The central focus of our inquiry therefore is whether the Tax Court properly determined that no reasonable cause existed to excuse Taxpayer's delinquent return filing. In accordance with Boyle, we shall review the Tax Court's findings regarding the existence or presence of circumstantial factors which might give rise to reasonable cause under the clearly erroneous standard. See also Millette & Associates, Inc. v. Commissioner, 594 F.2d 121, 125 (5th Cir.1972). 60 A review of the record demonstrates that the Tax Court's finding that the circumstantial factors which existed as of April 15, 1976 did not constitute reasonable cause is not clearly erroneous. Taxpayer was a licensed real estate agent. She had access to the books and records which would have enabled her to compute her tax liability since Morgan stored these materials in his office in their home. She apparently made no effort to ascertain the correct income of the family and failed to begin to determine her own separate tax liability until after being contacted by an IRS agent in November of 1976. In addition, she knew that she had earned a separate gross income from her own 1975 real estate activities and she possessed the documentation underlying those transactions which would have enabled her to file a timely return. Under these circumstances, the Tax Court's finding that Taxpayer failed to demonstrate the existence of reasonable cause for failing to comply with the April 15, 1976 deadline is not clearly erroneous and should be upheld. See Beatty v. Commissioner, 676 F.2d 150, 152 (5th Cir.1982); Electric and Neon, Inc. v. Commissioner, 56 T.C. 1324, 1342-44 (1971) , aff'd, 496 F.2d 876 (5th Cir.1974). 61 In conclusion, we find that the Tax Court properly determined that Taxpayer did not qualify for relief from tax liability under 26 U.S.C. Sec. 66(c). We further find that the Tax Court properly upheld the imposition of a delinquency penalty upon Taxpayer in accordance with 26 U.S.C. Sec. 6651(a)(1). 62 For the foregoing reasons, the decision of the Tax Court is AFFIRMED.