In Uncategorized on 09/11/2012 at 16:38

Or, Portney’s Complaint

This is the sad story of Anthony Tesoriero, and his long-time (but probably by now his ex) accountant, Jack Portney, CPA. Read all about it in Anthony Tesoriero, T. C. Memo. 2012-261, filed 9/11/12, Judge Wherry the Whimsical Judge (see my blogpost “A Whimsical Judge”, 3/6/12) being anything but whimsical here.

Tony’s problem was that his withholding was way low for the year at issue. Jack, not a bit dismayed “…did not adjust the estimated tax liability for wage income and did not adjust the total …payments for withholding credits. Nor did he adjust any entries to reflect Ms. Tesoriero’s income despite the fact that he knew she was employed by petitioner’s corporation.” T. C. Memo. 2012-261, at pp. 3-4 (footnote omitted).

By the way, Tony never told Jack that Ms. Tesoriero was in the process of divorcing him and that she was going to file separately, using another preparer. But that wasn’t all.

Jack, relying on the old SALY principle (Same As Last Year), just toted up Tony’s estimateds, put that number ($69K) down on a 4868, and sent his secretary to post it off via first-class mail. Jack routinely put about half his clients on extension; not uncommon. And used first-class mail, not registered or certified. Also not uncommon.

You can guess the rest. The 4868 never got there, Tony’s actual tax liability was more like $280K, and Tony gets nailed for the Section 6651(a)(1) late-filing penalty.

Tony pleads that Jack mailed the 4868, albeit not registered or certified, nor by a sanctioned private delivery service. Judge Wherry: “This Court has allowed taxpayers to prove delivery through other extrinsic evidence, such as testimony that they mailed the document. Estate of Wood v. Commissioner, 92 T.C. 793, 799 (1989), aff’d, 909 F.2d 1155 (8th Cir. 1990). In certain circumstances, therefore, taxpayers may prove delivery, thus filing, through testimony. But, as we have cautioned taxpayers in the past, when a return is not sent by registered or certified mail, it is the taxpayer, not the Government, that bears the risk of nondelivery. Walden v. Commissioner, 90 T.C. 947, 951 (1988).”  T. C. Memo. 2012-261, at p. 7.

Tony being a New Yorker, Judge Wherry has to follow Second Circuit learning, and Second Circuit isn’t friendly to unorthodox mailers. Section 7502 is the exclusive remedy in New York, Connecticut and Vermont. And that means registered, certified or sanctioned private deliverers…nothing else.

And the new retroactive regulation concerning mailing doesn’t matter: “Respondent contends for the first time in his posttrial reply brief that sec. 301.7502-1(e)(2), Proced. & Admin. Regs, promulgated in 2011 and effective September 21 2004, controls. See 76 Fed. Reg. 52561 (Aug. 23, 2011). Because we are constrained by precedent of the Second Circuit that reaches the same conclusion, we need not address this argument.” T. C. Memo. 2012-261, at p. 8, footnote 4. See my blogpost “Mail Call”, 9/16/11.

Tony is out of luck, and he can’t claim he reasonably relied on Jack to get the 4868 to IRS on time. Reliance on an agent is not reasonable reliance, unless a question of law is involved, such as “no tax due”, but not “I’ll timely file”. Second Circuit is adamant on that point as well. Finally, “petitioner did not produce evidence of such reliance. Petitioner never requested that Mr. Portney file an extension request. Nor did petitioner present evidence that he followed up with Mr. Portney to ensure that the extension request was filed. Mr. Portney did not call petitioner to inform him that an extension request had been filed.” T. C. Memo. 2012-261, at p. 11, footnote 6.

Preparers, pay the two-and-a-half bucks and send it certified (nothing says return receipt requested is required).

And taxpayers, don’t grouse when your preparer charges you the two-and-change for certified mail. It’s truly cheap.

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