Court Opinion

ID: 4702649
Source: CourtListenerOpinion
Date Created: 2021-07-10 00:01:45.30788+00
Date Added: 2024-06-11T08:06:26.161610
License: Public Domain

Case: 20-50994      Document: 00515932476          Page: 1     Date Filed: 07/09/2021

            United States Court of Appeals
                 for the Fifth Circuit                               United States Court of Appeals
                                                                              Fifth Circuit

                                                                            FILED
                                                                         July 9, 2021
                                    No. 20-50994
                                                                       Lyle W. Cayce
                                                                            Clerk

   Jeffery Allen Lindsay,

                                                             Plaintiff—Appellant,

                                        versus

   United States of America,

                                                             Defendant—Appellee.

                   Appeal from the United States District Court
                        for the Western District of Texas
                              USDC No. 4:19-CV-65

   Before Higginbotham, Stewart, and Wilson, Circuit Judges.
   Carl E. Stewart, Circuit Judge:
          Jeffery Allen Lindsay sued the Internal Revenue Service (“the IRS”)
   to recover penalties that he paid for filing late tax returns and making late tax
   payments for the 2012-2015 tax years. Lindsay’s suit alleged that he was
   entitled to the “reasonable cause” exception to the otherwise mandatory
   penalties. The district court granted the IRS’s motion to dismiss. We
   AFFIRM.
Case: 20-50994       Document: 00515932476           Page: 2      Date Filed: 07/09/2021

                                      No. 20-50994

                     I. FACTUAL AND PROCEDURAL HISTORY
          Lindsay was incarcerated 1 from April 2013 to June 2015. In May 2013,
   he executed a Universal Power of Attorney (“POA”) appointing Keith
   Bertelson as his attorney in fact. According to the terms of the POA,
   Bertelson had complete control of Lindsay’s bank accounts and retained full
   authority to “manage [his] affairs.” While incarcerated, Lindsay directed
   Bertelson to file his tax returns and pay his taxes. Although Bertelson assured
   Lindsay that he was filing his returns and paying his taxes, he was actually
   embezzling hundreds of thousands of dollars from him. Lindsay’s tax returns
   for 2012 through 2015 were not timely filed, nor were his taxes or estimated
   quarterly taxes timely paid. While still incarcerated, Lindsay discovered
   Bertelson’s malfeasance and revoked the POA in April 2014. Lindsay then
   sued Bertelson for embezzlement and after a jury trial in 2015, he was
   awarded $705,414.61 in actual damages and $1 million in punitive damages.
          Once Lindsay was released from prison, he eventually filed all
   delinquent tax returns and paid the taxes owed, plus interest and $425,307.98
   in penalties. In 2018, Lindsay was unsuccessful in obtaining a refund for the
   penalties that he paid to the IRS. He filed suit in federal district court the
   following year. In his complaint, Lindsay argued that his failure to file his tax
   returns and pay his taxes was due to reasonable cause and not willful neglect.
   He alleged that his incarceration qualified as a “disability” and that,
   considering his unusual circumstances, penalizing him for late filing and
   payments would go against equity and good conscience. He demanded a jury
   trial and sought a refund of the penalties that he paid.

          1
             Lindsay has had multiple run-ins with the law. He was imprisoned at FCI Big
   Spring from 1996-2000.

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          The IRS moved to dismiss under Federal Rule of Civil Procedure
   12(b)(6) for failure to state a claim upon which relief can be granted and,
   alternatively, for summary judgment. Relying on the Supreme Court’s
   opinion in United States v. Boyle, 469 U.S. 241 (1985), the Government
   argued that a taxpayer is not entitled to the reasonable cause defense for late
   filings when he relies on an agent to file a timely tax return and the deadline
   for filing is ascertainable by the taxpayer.
          The magistrate judge issued a report and recommendation that the
   Government’s motion to dismiss be denied. The district court disagreed and
   issued an order rejecting the magistrate judge’s report and recommendation.
   In its order, the district court explained that while it was sympathetic to
   Lindsay’s specific circumstances, the “weight of authority indicates he has
   failed to state a claim upon which relief can be granted.” Beginning with
   Boyle, 469 U.S. at 245, the district court navigated the relevant caselaw and
   concluded that Lindsay was not entitled to assert the reasonable cause
   defense under I.R.C. § 6651(a)(1)–(2) or § 6654(a). Although the district
   court granted the Government’s motion to dismiss, it permitted Lindsay
   fourteen days to amend his complaint should he wish to do so. When Lindsay
   did not file an amended complaint by the designated deadline, the district
   court issued an order dismissing his suit and closing the case. This appeal
   follows.
                                 II. STANDARD OF REVIEW
          “We review a district court’s grant of a motion to dismiss de novo,
   ‘accepting all well-pleaded facts as true and viewing those facts in the light
   most favorable to the plaintiffs.’” Anderson v. Valdez, 845 F.3d 580, 589 (5th
   Cir. 2016) (quoting Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th
   Cir. 2008)). To prevail on a Rule 12(b)(6) motion to dismiss, “a plaintiff’s
   complaint ‘must contain sufficient factual matter, [if] accepted as true, to

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   ‘state a claim to relief that is plausible on its face.’” Id. (quoting Ashcroft v.
   Iqbal, 556 U.S. 662, 678 (2009)); see FED. R. CIV. P. 12(b)(6). “A claim has
   facial plausibility when the plaintiff pleads factual content that allows the
   court to draw the reasonable inference that the defendant is liable for the
   misconduct alleged.” Id. (quoting Iqbal, 556 U.S. at 678).
                                  III. DISCUSSION
          Lindsay argues that he sufficiently pled reasonable cause under the
   Internal Revenue Code. We disagree.
                   A. Reasonable Cause under I.R.C. § 6651(a)(1)–(2)
          Lindsay first argues that he was exempt from the mandatory penalties
   under I.R.C. §§ 6651(a)(1) and (a)(2) because he demonstrated reasonable
   cause. The district court dismissed Lindsay’s suit, citing Boyle, 469 U.S. at
   245.
          Section 6651(a)(1) of the Internal Revenue Code provides that failure
   to timely file a return will result in a monetary penalty “unless it is shown
   that such failure is due to reasonable cause and not due to willful neglect[.]”
   I.R.C. § 6651(a)(1). Section 6651(a)(2) similarly provides that failure to
   timely pay taxes owed will result in a monetary penalty “unless it is shown
   that such failure is due to reasonable cause and not due to willful neglect[.]”
   § 6651(a)(2).
          The Internal Revenue Code does not define “reasonable cause,” but
   the Treasury Department’s regulations provide some clarity:
          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. A failure to pay will be
          considered to be due to reasonable cause to the extent that the
          taxpayer has made a satisfactory showing that he exercised ordinary
          business care and prudence in providing for payment of his tax liability

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          and was nevertheless either unable to pay the tax or would suffer an
          undue hardship . . . if he paid on the due date.
   26 C.F.R. § 301.6651-1(c)(1). The reasonable cause inquiry thus includes two
   questions—first, whether the taxpayer used ordinary business care and
   prudence, and second, whether he was nevertheless unable to pay the tax. Id.
          In Boyle, the Supreme Court considered whether a taxpayer could
   avail himself of the reasonable cause exception to tax penalties where the
   taxpayer hired a lawyer who filed the taxes three months late. 469 U.S. at
   243–44. The Court stated that while “[e]ngaging an attorney to assist in the
   probate proceedings is plainly an exercise of the ‘ordinary business care and
   prudence’ . . . that does not provide an answer to the question [of reasonable
   cause].” Id. at 250. Though taxpayers may entrust certain duties to their
   agents, “Congress has placed the burden of prompt filing on the executor,
   not on some agent or employee of the executor . . . . Congress intended to
   place upon the taxpayer an obligation to ascertain the statutory deadline and
   then to meet that deadline, except in a very narrow range of situations.” Id.
   at 249–50.
          Lindsay claims that he exercised ordinary business care and diligence
   by giving Bertelson his power of attorney and by directing Bertelson to file
   his income tax returns and to pay his taxes. Lindsay routinely asked Bertelson
   whether he was handling Lindsay’s tax obligations, and Bertelson said that
   he was. In Lindsay’s view, he has a reasonable cause for late filings and
   delayed payments because he used ordinary business care and prudence but
   was nevertheless unable to file his returns and pay his income taxes due to
   circumstances beyond his control, i.e., Bertelson’s malfeasance.
          Lindsay’s position was rejected in Boyle. Boyle established that
   taxpayers have a non-delegable duty to promptly file and pay their taxes. 469
   U.S. at 249–50. Unlike cases where taxpayers seek and detrimentally rely on

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   tax advice from experts, “one does not have to be a tax expert to know that
   tax returns have fixed filing dates and that taxes must be paid when they are
   due.” Id. at 251. Lindsay’s argument fails.
          Lindsay next argues his circumstances fit the IRS’s internal definition
   of reasonable cause.
          The Internal Revenue Service has articulated eight reasons for a late
          filing that it considers to constitute “reasonable cause.” These
          reasons include unavoidable postal delays, the taxpayer’s timely filing
          of a return with the wrong IRS office, the taxpayer’s reliance on the
          erroneous advice of an IRS officer or employee, the death or serious
          illness of the taxpayer or a member of his immediate family, the
          taxpayer’s unavoidable absence, destruction by casualty of the
          taxpayer’s records or place of business, failure of the IRS to furnish
          the taxpayer with the necessary forms in a timely fashion, and 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 the preparation of a return. Internal Revenue
          Manual (CCH) § 4350, (24) ¶ 22.2(2) (Mar. 20, 1980) (Audit
          Technique Manual for Estate Tax Examiners).
   Boyle, 469 U.S. at 243 n.1 (emphasis added). Lindsay points to his
   incarceration as an example of an unavoidable absence, but “the mere fact
   that [Lindsay] was incarcerated when his return was due is not reasonable
   cause for his failure to file timely.” George v. Comm’r, T.C. Memo 2019-128,
   2019 WL 4686285, at *3 (collecting cases)). “Nor is the unavailability of
   records generally reasonable cause for failure to file a timely return.” Id. This
   argument fails as well.
          Lindsay’s final argument is that Boyle does not control in cases where
   a taxpayer is not “physically and mentally capable of knowing, remembering,
   and complying with a filing deadline.” 469 U.S. at 253 (Breyer, J.,
   concurring). He argues that his incarceration rendered him incapable of
   complying with his filing deadline, and he relies on Brown v. United States,

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                                         No. 20-50994

   630 F. Supp. 57 (M.D. Tenn. 1985). In Brown, the district court concluded
   that Boyle did not govern the § 6651(a)(1) analysis where an elderly man
   entrusted his tax responsibilities to an attorney, the attorney became ill and
   filed the return late, and the elderly man was “incapable of meeting the
   criteria of ordinary business care and prudence” given his age, health, and
   lack of experience. Id. at 58, 60.
            Even if we read Boyle and Brown as creating an exception to the
   reasonable cause rule, Lindsay was not incapable of meeting the filing and
   payment deadlines. Lindsay could have used ordinary business care and
   prudence to assure that his taxes were filed and paid, much like he conducted
   business and employed a CPA while incarcerated. Lindsay failed to act with
   such care, and we affirm the district court’s dismissal accordingly. 2
                         B. Reasonable Cause under I.R.C. § 6654
            Section 6654(a) imposes a penalty for underpayment of estimated
   quarterly taxes. Section 6654(e)(3)(B)(ii) waives the penalty where
   “underpayment was due to reasonable cause and not to willful neglect.” For
   the reasons discussed above, Lindsay has failed to demonstrate reasonable
   cause.
                                     IV. CONCLUSION
            For the aforementioned reasons, we AFFIRM the district court.

            2
             Lindsay also contends that his agent’s embezzlement incapacitated him, and he
   should be exempted from the reasonable cause standard under Matter of American
   Biomaterials Corporation, 954 F.2d 919 (3rd Cir. 1992). That case is distinguishable because
   unlike the company in American Biomaterials, Lindsay could have controlled his agent.

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