One of the things I like most about being a tax lawyer in our community is having clients who are willing to take on the IRS without fear. Almost without exception they will fight to the bitter end, especially if their case may help others suffering in the same way. As I work in a small firm, I don’t have to sell billable hours, so I too can devote whatever time is necessary to follow through until the very end.
I have another such test case that will shortly be pending before the Fifth Circuit Court of Appeals, the most respected federal appeals court on tax matters in the U.S. Since this case could affect potentially millions of us, I thought I would write about it today and ask for your prayers that we succeed.
Here is the case:
As we all know, the Internal Revenue Code provides a penalty if we are late complying with many of our federal tax obligations. There are penalties for late filing, late payment, late deposits, etc . Penalties can be quite substantial and with interest can actually double the amount we owe.
There is a relief provision for most of these penalties. Penalties can generally be set aside if we can prove we acted in a reasonable and prudent businesslike manner but were nevertheless unable to timely file or pay without undue hardship. These words are legal terms of art and have been analyzed by the courts for years in literally thousands of cases. There are dozens of reasons that the courts have accepted as constituting undue hardship.
So the system works like this. If you file your return late or pay late, the IRS computer will automatically assess a penalty and interest on that penalty. A bill is sent to you for payment by the collection division.
At that time you can send a letter to the IRS and explain why you were unable to file or pay on time. If it holds against you, we can ask for an appeals conference. If they still disagree we can go to Court and sometimes even ask for a jury trial.
But there is a special exception to this relief rule for returns which are filed late by your accountant. Summarizing very briefly for this article, the Supreme Court has basically ruled that there cannot be a reasonable excuse for our accountant’s late filing since everyone knows the due date and the filing is simply a clerical act of placing a stamp on an envelope containing a paper return. We can’t delegate that simple duty to file to the accountant.
But that case was issued in 1984 when all returns were paper and filed by mailing. Today millions of us pay our accountants to efile, or we buy computer software and try to do so ourselves. If we or our accountant make a reasonable error, we are NOT able to use the reasonable excuse provision that Congress established for relief.
In this new test case we are sending to the Fifth Circuit, we are asking the Appeals Court to note that the Supreme Court case was issued before the present internet was around , before E-Filing had been implemented, and before the IRS “required” us to e-file. We are therefore asking that the old Supreme Court case be limited to the paper filed returns that it was then addressing . This analysis would allow us access to penalty relief when we have a reasonable excuse for late e-filing.
Our test case has received a lot of national publicity. It even looks like a supporting brief may be filed in the Fifth Circuit by an important national tax organization in support of this change in interpretation.
Folks, I will keep you informed as to the outcome of this case. And in the meantime- please keep us in your prayers !
David Leeper is a Board Certified federal tax attorney with 38 years experience . He can be reached at 915-581-8748 or by email at leepertaxlawelpaso@gmail.com