I am looking at a case where the taxpayers wanted penalty
abatement for reasonable cause.
I have been cynical for years about the IRS allowing reasonable
cause, but let’s read on.
The Koncurats owed for years 2005, 2006 and 2010
through 2016.
CTG: There is a donut in there from 2007 through 2009.
I wonder what happened?
For the years at issue Stephen Koncurat owned his own company
in the insurance industry. Tamara Koncurat maintained their home and raised
four children.
The interest and penalties added up, exceeding $670
grand. To their credit, the Koncurats did not argue the tax due. They did feel,
however, that penalty abatement was warranted because “circumstances largely
beyond his control” prevented them from meeting their tax obligations.
There were a lot of years involved, though. What were
those circumstances?
· Around
2007 or 2008 Stephen had six rental properties foreclosed.
COMMENT: Got it. That was
the Lehman Brothers bankruptcy and the near implosion of the American housing
market.
· From
2010 to 2011 Stephen’s income dropped sharply from over $450K to about $96K.
· There was a stretch where they could not even afford to make their house payment. Stephen’s father made the payments for them.
OBSERVATION: This is years after 2005 and 2006, however. I can see going into a payment plan, then negotiating with the IRS to reduce or interrupt payments because of subsequent events cratering one’s income. It is not the easiest thing to do, but it can be done.
· Around
2014 or 2015 Stephen broke his back.
· In
2018 he was diagnosed with cancer and a blocked artery.
· He
thereafter underwent three major surgeries and attended over 100 medical
appointments.
He continued to work, as best he could., They reported
the following income:
2005 $274,359
2006 $251,902
2010 $462,455
2011 $95,974
2012 $71,847
2013 $109,072
2014 $171,648
2015 $207,398
2016 $314,491
I get it. The 2011 through 2013 tax years were aberrant.
I am impressed how well he did during the broken back,
cancer and surgery years, though.
Stephen voluntarily paid $1,500 a month to the IRS.
Good.
Starting January 2020.
What? Starting …??
I admit, this is going to be a problem. Unexpected
circumstances can knock you off your feet. Maybe you don’t file or pay for a
couple of years, but there is a beginning and end to the story. Somewhere in
there the IRS – and reasonable cause – expects you to put on your big boy pants
and try to comply. Hopefully you can file and pay, but maybe all you can do is
file. Fine, then file and request a payment plan. Will the IRS be unreasonable?
Of course. What if they want more than you can pay? Then request a Collections
Due Process hearing.
The point is: get back into the system.
If you don’t, then reasonable cause – hard to obtain
under regular circumstances – takes a step up the difficulty ladder. You now
have to present “unavoidable obstacles” to your compliance.
Short of being in a coma or Marvel Universe superheroes
destroying your city, that “unavoidable” threshold is going to be near-nigh
impossible to meet.
Here is the Court:
· They
have alleged no details sufficient to support a finding that any of the hardships
they experienced actually presented unavoidable obstacles.”
· Further,
the Koncurats have not alleged … that they ‘didn’t have [the money] or couldn’t
keep [the installment plan] going…’”
· While
the family’s financial troubles were significant at times, the record reflects
that they have had consistent access to financial resources throughout the years
at issue.”
· They
were … contributing tuition, housing and wedding expenses to children….”
That last one doesn’t make sense for broke people.
· Stephen
Koncurat earned more than one million dollars in income in 2019, and again in
2021.”
So we are not talking about broke people. Broke people
do not make a million dollars a year.
The Court wanted to know why – with that million
dollars – they did not clean-up their tax debt – or at least a chunk of it – rather
than delaying payment and tying up the Court’s time.
There was no reasonable cause for the Koncurats. Heck,
one could have looked at the extended failure to pay and instead concluded that
there was willful neglect.
Meaning no penalty abatement.
No surprise there.
The Koncurats dug themselves a hole by letting the
matter go on long enough to attend high school. The likelihood of reasonable
cause over that much time was minimal, but I do think that there was something
they could have done to improve their odds.
What would that have been?
Take that $1 million dollars and pay the IRS.
They would then have gone before the Court and argued
that they had a bad stretch, causing them to fail in their obligations and run
afoul of the tax system. However, when their fortune improved, the first party
they took care of was … the IRS.
Would this have allowed reasonable cause? Financial
difficulties generally do not lead to eligibility for reasonable cause relief.
But it would not have hurt. It also would have lifted the
needle off zero and given the Court something specific to support a
taxpayer-favorable determination.
Our case this time was United States v Koncurat,
USDC MD, Case No 1:21-cv-00676.
No comments:
Post a Comment