What if you give your tax documents to your CPA and
your CPA dies before preparing your return?
I am reading a case where that happened.
I will lead with this: the IRS assessed almost $41,000
in penalties.
The Willetts had a longstanding relationship with their
CPA (Goode). In August, 2015 they gave her all the tax documents to prepare
their 2014 tax return.
Time passed and the Willetts attempted to reach Goode,
but without success. In October, she finally responded, explaining she had been
ill and in a nursing home. She would cover any penalties and interest
associated with their return.
In November, 2015 (mind you, the return was due October
15) Mrs Willett visited Goode at her home. Ms Goode assured her she would bounce
back and finish their return.
That was the last time the Willetts spoke with Goode,
who passed away in February, 2017.
The Willetts had some foreboding, however, as they
contacted other CPA firms to address their 2014 return. There were obstacles –
Goode had original documents, for example – but they were trying. The Willetts
were told that the firms were already too busy with individual returns or that
their return was too complex.
COMMENT: Folks, that sounds odd to this practitioner. Methinks there is more to the story.
They finally found and hired a CPA in June, 2016. They
filed their 2014 return in September, 2016 – eleven months late.
You already know the IRS came back hot with penalties
and interest.
The Willetts took the case to a District Court in
California.
COMMENT: That means that they had to pay the penalties and then litigate for a refund. Had they gone to Tax Court, they would not have had to pay the penalties and interest before bringing suit. That would be the upside. The downside to the Tax Court is that the judges are tax specialists. It is a little harder to spin a tale to a specialist, as opposed to a district judge who is a generalist and hears a spectrum of cases.
Penalties can be abated for reasonable cause, but there
is a case out there – Boyle – that greatly circumscribes a taxpayer’s
ability to rely on an accountant in order to abate penalties. The Boyle decision
(sort of) divided tax practice into two categories for purpose of penalty abatement:
(1) The
first category is “routine” compliance, such as looking up when a tax return is
due and making sure it gets filed by then.
(2) The
second category includes professional advice, such as whether a Code section affects
a taxpayer or what certain provisions from the 2017 Tax Cut and Jobs Act even
mean.
The Boyle court acknowledged that one could
rely on an accountant for column two issues, but one probably could not rely
for purposes of column one. The IRS has subsequently
interpreted Boyle aggressively, arguing that the qualifier “probably” is
not even required in the preceding sentence.
So how does Boyle work when your CPA dies? Is
it more like column one or more like column two?
The Court discussed issues surrounding taxpayer reliance
on an agent, but at heart the Court was looking at someone who relied on an
accountant – apparently a sole practitioner – who was quite ill, in and out of
nursing facilities and incapable of producing timely work.
Question: what would a reasonable person do?
After all, the concept is reasonable cause.
The Court was not at all persuaded that reasonable people
would wait endlessly for their accountant to recover from a nursing home stay before
preparing their return. A reasonable person would seek-out another accountant –
even if it was a one-off engagement - in order to meet their tax responsibilities.
There was no reasonable cause.
I admire the Willetts’ loyalty to their practitioner,
but their delay cost them $41 grand.
