“Taxes are
what we pay for civilized society.” Compania General De Tabacos de
Filipinas v. Collector, 275 U.S. 87, 100 (1927) (Taft, C.J.). For good reason,
there are few lawful justifications for failing to pay one's
taxes. Plaintiff All Stacked Up Masonry, Inc. (“All Stacked Up”), a
corporation, believes it has such an excuse. It brings this suit to challenge
penalties and interest assessed by the Internal Revenue Service (“IRS”)
following its failure to file the appropriate payroll tax documents and its
failure to timely pay payroll tax liabilities for multiple tax periods.
The above is how the Court decision starts.
Here are the facts from 30,000 feet.
· The
company provides masonry services.
· The
company got into payroll tax issues from 2013 through 2015.
· The
company paid over $95 thousand in penalties and interest.
· It
now wanted that money back. To do so it had to present reasonable cause for how
it got into this mess in the first place.
Proving reasonable cause is not easy, as the IRS keeps
shrinking the universe of reasonable cause. An example is an accountant missing a timely
extension. There is a case out there called Boyle, and the case divides
an accountant’s services into two broad camps:
· Advice
on technical issues, and
· Stuff
a monkey could do.
Let’s say that CTG Galactic Command is planning a
corporate reorganization and we blow a step, causing significant tax due. Reliance
on us as your advisors will probably constitute reasonable cause, as the
transaction under consideration was complex and required specialized expertise.
Let’s say however that we fail to extend the corporate return – or we file it
two days after its extended due date. Boyle stands for the position that
anyone can google when the return was due, meaning that relying on us as your
tax advisors to comply with your filing deadline is not reasonable.
As a practitioner, I have very little patience with Boyle.
We prepare well over a thousand individual tax returns, not to mention business,
nonprofit, payroll, sales tax, paper airplanes and everything in between. Visit
this office during the last few days before April 15th, for example, and you
can feel the tension like the hum from an electrical transformer. What returns
are finished? What returns are only missing an item or two and can hopefully be
finished? What returns cannot possibly be finished? Do we have enough
information to make an educated guess at tax due? Who is calling the client? Who is tracking and recording all this to be
sure that nothing is overlooked? Why do we do this to ourselves?
Yeah, mistakes happen in practice. Boyle just
doesn’t care. Boyle holds practitioners to a standard that the IRS
itself cannot rise to. I have several files in my office just waiting, because
the IRS DOES NOT KNOW WHAT TO DO. I brought in the Taxpayer Advocate recently
because IRS Kansas City botched a client. We filed an amended return in
response to a Notice of Deficiency the client did not inform us about. The amended
must have appeared as “too much work” to some IRS employee, and we were
informed that Kansas City inexplicably closed the file. This act occurred well
before but was fortuitously masked by subsequent COVID issues. The after-effects
were breathtaking, with lien notices, our requests for releases, telephone calls
with IRS attorneys, Collection’s laughable insistence on a payment plan, and –
ultimately – a delay on the client’s refinancing. IRS incompetence cumulatively
cost me the better part of a day’s work. Considering what I do for a living,
that is time and money I cannot get back
I should be able to bill the IRS for wasting my time
over stuff a monkey could do.
The Advocate did a good job, by the way.
Let’s get back to All Stacked Up, the company whose
payroll issues we were discussing.
The owner fell on ice and suffered significant
injuries. This led to the owner relying on an employee for tax compliance. That
reliance was misplaced.
· The
first two quarterly payroll returns for 2013 were filed late.
· The
fourth quarter, 2013 return would have been due January 31, 2014. It was not
filed until July 13, 2015.
· None
of the 2014 quarterly returns were filed until the summer of 2015.
· To
complete this sound track, the payroll tax deposits were no timelier than the
filing of the returns themselves.
Frankly, the company should just have let its CPA firm
take care of the matter. Had the firm botched the work this badly, at least the
company would have a possible malpractice lawsuit.
The company pleaded reasonable cause. The owner was
injured and tried to delegate the tax duties to someone during his absence.
Granted, it did not go well, but that does mean that the owner did not try to behave
as a prudent business person.
I get the argument. All Stacked Up is not Apple or
Microsoft, with acres and acres of lawyers and accountants. They did the best they
could with the (clearly limited) resources they had.
The company appealed the penalties. IRS Appeals was
willing to compromise – but only a bit. Appeals would abate 16.66% of the
penalties and related interest. This presented a tough call: accept the abatement
or go for it all.
The company went for it all.
Here is the Court:
Applying Boyle to this case, it is clear as a matter
of law that retention of an employee or software to prepare and remit tax
filings, make required deposits, and tender payments cannot, in itself,
constitute “reasonable cause” for All Stacked Up’s failure to satisfy those tax
obligations. The employee’s failures are All Stacked Up’s failures, no matter
how prudent the delegation of those duties may have been.”
And there is full Boyle: we don’t care about
your problems and you doing your best with the resources available. Your
standard is perfection, and do not ask whether we hold ourselves to the same
standard.
I wonder if that employee is still there.
I mean the one at IRS Kansas City.
Our case this time was All Stacked Up v U.S.,
2020 PTC 340 (Fed Cl 2020).
