I had a conversation
this week with another practitioner.
He has an
elderly client who is having memory issues. This client in turn is represented by
another person – an agent. The agent refuses to sign or provide consent to the
filing of the elderly client’s tax return.
My first
thought was that there must be odd stuff on the client’s return, but I am
assured that is not the case. The agent is – how to say this delicately – not a
likeable person.
The
practitioner asked me what I would do.
The issue is
that a tax return is confidential information. We – as CPAs – are not allowed
to release a return, even to the IRS, without permission from the client. The
IRS requests that this permission be in writing, which is why you sign a form
and return it to your preparer before he/she electronically files your return.
Theory is
easy. Life is messy.
Let’s segue by
looking at a penalty case.
The taxpayer
was protesting $58 thousand in penalties.
Turns out
the taxpayer was an S corporation. This type of corporation (normally) does not
pay tax. Rather it divides up its income among its shareholders (on Form K-1,
to be specific), who in turn include those numbers on their individual tax
returns.
For years 2011
through 2013 the company did not file returns with the IRS.
Yep, that is
going to hurt.
But it did
issue K-1s to its shareholders, so (supposedly) all taxes were timely and correctly
paid to the Treasury.
Seems odd.
Why would the company issue K-1s but not file the return itself with the IRS?
Turns out
that there were a number of related family companies – 19 of them, in fact. The
patriarch of the family (Victor) hired a CPA (Tapling) to function as CFO for
all his companies.
Victor was
diagnosed with and treated for cancer. He died December 30, 2013.
We are
talking about penalties for years 2011 through 2013, so I suspect that Victor’s
illness is involved.
In 2010 Tapling
himself was diagnosed with cancer. He eventually died from complications in
2016.
Tapling prepared
and distributed the K-1s for years 2011 through 2013 but did not however send
the returns to the IRS. Why? Perhaps he was waiting for the passing of authority
within the family. Perhaps he did not consider it within his corporate authority
to actually sign the returns. Maybe the transition involved family members who wanted
Tapling gone, and he did not want to provide easy reasons for his dismissal.
The IRS came
in hot.
It led with the
Boyle decision (of which we have spoken before), arguing that the
corporation was more than Victor or Tapling. It had a Board of Directors, for
example, and the Board could have – should have – stepped in to be sure that returns
were being filed.
The company argued
that Boyle involved an agent. This situation involved corporate
officers and not agents. Its officers were gravely ill and did not timely
discharge their responsibilities, much to the company’s detriment.
I see both
sides.
To me, the
IRS and the company should compromise. Perhaps the IRS could abate 50% of the
penalty, and the company would hold its nose and write a check. Both sides could
acknowledge that the other side had valid points. Life is messy.
Not a
chance:
Consequently the court grants defendant’s motion for summary judgement and denies plaintiff’s motion for summary judgement.”
The IRS won
it all.
Our case this
time for the home gamers is Hunter Maintenance & Leasing Corp., Inc.v
United States.