Penalties, Boyle and “Reductio Ad Absurdum.”

 

In logic there is an argument referred to as “reductio ad absurdum.” Its classic presentation is to pursue an assertion or position until it – despite one progressing logically – results in an absurd conclusion. An example would be the argument that the more sleep one gets, the healthier one is. It does not take long to get to the conclusion that someone who sleeps 24 hours a day – in a coma, perhaps – is in peak physical condition.

I am looking at a tax case that fits this description.

What sets it up is our old nemesis – the Boyle decision. Boyle hired an attorney to take care of an estate tax return. The attorney unfortunately filed the return a few months late, and the IRS came with penalties a-flying. Boyle requested penalty abatement for reasonable cause. The Court asked for the grounds constituting reasonable cause. Boyle responded:

                  I hired an ATTORNEY.”

Personally, I agree with Boyle.

The Court however did not. The Court subdivided tax practice in a Camusian manner by holding that:

·      Tax advice can constitute reasonable cause, as the advice can be wrong;

·      Relying on someone to file an extension or return for you cannot constitute reasonable cause, as even a monkey or U.S. Representative could google and find out when the filing is due.

 Here is an exercise for the tax nerd.

(1)  Go to the internet.

(2)  Tell me when a regular vanilla C corporation tax return is due.

(3)  Change the corporate year-end to June 30.

a.    When is that return due?

Yes, the due dates are different. I know because of what I do. Would you have gone to step (3) if I had not pushed you?

Jeffery Lindsay was in prison from 2013 to 2015. He gave his attorney a power of attorney over everything – bank accounts, filing taxes and so on. Lindsay requested the attorney to file and pay his taxes. The attorney assured him he was taking care of it.

He was taking care of Lindsay, all right. He was busy embezzling hundreds of thousands of dollars is what he was doing. Lindsay got wind, sued and won over $700 grand in actual damages and $1 million in punitive damages.

The IRS came in. Why? Because the last thing that the attorney cared about was filing Lindsay’s taxes, paying estimates, any of that. It turns out that Lindsay had filed nothing for years. Lindsay of course owed back taxes. He owed interest on the tax, as he did not pay on time. What stung is that the IRS wanted over $425 grand in penalties.

He did what you or I would do: request that the penalties be abated.

The Court wanted to know the grounds constituting reasonable cause.

Are you kidding me?

Lindsay pointed out the obvious:

         I was in PRISON.”

Here is the Court:

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.”

The Court agreed with the IRS and denied reasonable cause.

Lindsay was out hundreds of thousand of dollars in penalties.

I consider the decision the logical conclusion of Boyle. I also think it is a bad decision, and it encapsulates, highlights and magnifies the absurdity of Boyle using the logic of “reductio ad absurdum.”

Our case this time was Lindsay v United States, USDC No 4:19-CV-65.