Part Time Bookkeeper, Big Time Penalty

 

We filed another petition with the Tax Court this week.

For a client new to the firm.

Much of this unfortunately was ICDIM: I can do it myself. The client did not understand how the IRS matches information. There was an oddball one-off transaction, resulting in nonstandard tax reporting. Stir in some you-do-not-know-what-you-do-not-know (YDNKWYDNK), some COVIDIRS202020212022 and now I am involved.

I am looking at case that just screams YDNKWYDNK.

Here is part of the first paragraph:

This case is before the Court on a Petition for review of a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330, dated February 13, 2018 (notice of determination). The notice of determination sustained a notice of federal tax lien (NFTL) filing (NFTL filing) with respect to trust fund recovery penalties (TFRPs) under section 6672. The TFRPs were assessed against petitioner for failing to collect and pay over employment taxes owed by Urgent Care Center, Inc. (Urgent Care), for taxable quarters ending June 30 and September 30, 2014 (periods at issue), resulting in outstanding liabilities of $6, 184.23 and $4, 190.77, respectively.

That section 6330 is hard procedural, and it is going to hurt.

Mr Kazmi was a bookkeeper. He worked part-time at Urgent Care. Urgent Care did not remit employment taxes for a stretch, and unfortunately that stretch included the period when Mr Kazmi was there.

We are talking the big boy penalty, otherwise known as the responsible person penalty. The point of the penalty is to migrate the tax due to someone who had enough authority and responsibility to have paid the IRS but chose not to.

Mr Kazmi had no ownership interest in Urgent Care. He was not an officer. He was not a signatory on any bank accounts. He had no authority to decide who got paid. At all times he worked under the authority of the person who owned the place (Dr Senno). What he did have was a tax power of attorney.

Folks, I probably have a thousand tax powers of attorney out there.

Sounds to me like Mr Kazmi was the least responsible person (at least for payroll taxes) at Urgent Care.

The IRS Revenue Officer (RO) thought otherwise and on December 16, 2015 issued Mr Kazmi a letter 1153, a letter which said “tag, you are a responsible party; have a nice day.”

From what I am reading, this was a preposterous position. I generally have respect for ROs, but this one is a bad apple.  

Still, there are consequences.

Procedurally Mr Kazmi had 60 days to challenge the 1153.

He did not.

Why?

He did not know what he did not know.

A little time passed and the IRS came for its money. It wanted a lien. It also wanted a vanilla waffle ice cream cone.

Mr Kazmi yelled: Halt! He filed for a Collection Due Process (CDP) hearing. In the paperwork he included the obvious:

I am just a part-time bookkeeper. I am not responsible for collection or accounting or making payments for any tax payments for Urgent Care.

Makes sense.

Doesn’t matter.

He did not know what he did not know.

Let’s talk about the “one bite at the apple” rule.  In the current context, the rule means that a taxpayer cannot challenge an underlying liability if he/she already had a prior opportunity to do so.

One bite.

Mr Kazmi had his one bite when he received his letter 1153. You remember – the one he blew off.

He was now in CDP wanting to challenge the penalty. He wanted a second bite.

Not going to get it.

CDP was happy to talk about a payment plan and deadbeat taxpayers and whatnot. What it wouldn’t do was talk about whether Mr Kazmi deserved the penalty chop to begin with.

I am not a fan of such hard procedural. The vast majority of us will go a lifetime having no interaction with the IRS, excepting perhaps a minor notice now and then. It seems unreasonable to hold an average someone to stringent and obscure rules, rules that most attorneys and CPAs – unless they are tax specialists – would themselves be unaware of.

Still, it is what it is.

Does Mr Kazmi have any options left?

I think so.

Maybe a request for reconsideration.

Odds? So-so, maybe less.

A liability offer in compromise?

I like that one better.

Folks, it would have been much easier to pop this balloon back when the IRS trotted out that inappropriate letter 1153.

Mr Kazmi did not know what he did not know.

Our case this time was Kazmi v Commissioner, T.C. Memo 2022-13.