Opinion ID: 48732
Heading Depth: 3
Heading Rank: 5

Heading: S.I.'s Claim Under the Multi-Factor Test

Text: 44 A taxpayer has a heavy burden in establishing that it had reasonable cause not to file, pay, or deposit payroll taxes. 31 In fact, this burden is so weighty that, to our knowledge, only one appellate opinion has ever concluded that a taxpayer's failure to pay payroll taxes in a timely fashion was the result of reasonable cause and not willful neglect. 32 45 Here, S.I. argues that Compaq's cut-backs, Enron's and Global Crossing's collapses, S.I.'s loss of its financing arrangement with Prinvest, and the problems rampant throughout the financial sector of the national economy following the attacks of September 11, combined to frustrate S.I.'s ability to file, to pay, and to deposit its payroll taxes timely. We do not dispute that S.I. suffered financial difficulties. We do dispute, however, S.I.'s insistence that these difficulties and, more importantly, S.I.'s response to them, constituted reasonable cause for S.I.'s failure to satisfy timely its payroll tax obligations. 46 As for the penalties for failure to file, we cannot accept that S.I.'s financial difficulties prevented it from filing its payroll tax returns on time. Although S.I.'s financial difficulties may well have affected its ability to pay and to deposit, they certainly had no discernible effect on its ability to file. In fact, S.I. offers no legitimate reason for its failure to file, attempting instead to conflate the failure to file penalties with S.I.'s rationale for failing to pay and to deposit its payroll taxes in a timely manner. It is axiomatic, however, that these imposts penalize different failures and cannot be viewed through the same lens simply because a taxpayer fails to discharge all three duties fully and timely. S.I.'s case is not one in which a taxpayer's financial difficulties prevented it from filing its tax returns, regardless of any inability to pay or to deposit—if such a case even exists. As S.I. has offered no legitimate reason for its failure to file payroll tax returns timely, it is not entitled to abatement of penalties for its failure to file. 47 As for penalties for failure to pay and failure to deposit, the jurisprudence reflects that the primary factors in determining whether a taxpayer exercised ordinary business care are (1) the taxpayer's favoring of other creditors over the government, which weighs against a finding of reasonable cause, and (2) the taxpayer's willingness to decrease expenses and personnel, which weighs in favor of a finding of reasonable cause. 33 48 Despite all its financial troubles in late 2001 and early 2002, S.I. continued to pay virtually all its creditors, its employees, its contractors, its officer-stockholders, and its operating expenses in preference to its payroll tax obligations. S.I. relegated its obligations to the government to those owed to its other creditors and even those owed to its own officer-shareholders. The logical consequence of S.I.'s actions is the imposition of tax penalties. To conclude otherwise would be to sanction S.I.'s unilateral, self-execution of a government loan. We conclude that, like its non-entitlement to abatement of its penalties for failure to file, S.I. is not entitled to an abatement of its failure-to-pay or its failure-to-deposit penalties. 34