In Uncategorized on 03/13/2019 at 16:23

I need to expand my vocabulary, so I invented a new word wherewith to entitle my discussion of ATL & Sons Holdings, Inc., 152 T. C. 8, filed 3/13/19. ATL is a Sub S with two (count ‘em, two) shareholders. As they had done in a prior year, they filed their 1040s on extension, showing whatever the late-filed 1120S would have required them to show.

In the prior year, IRS gave the shareholders a bye on the Section 6699 late-filing chops. But for year at issue, ATL forgot the Form 7004 extension, so IRS chops ATL six months’ worth of the statutory $135 for each shareholder. Likewise, there’s no Section 6751(b) Boss Hoss sign-off because “automatically calculated by electronic means.”

ATL wants the same as before, but each year stands on its own. And the first-time bye for a late-filed 1120S is out because ATL had theirs.

The Tax Payer Advocate, the redoutable Nina E. (“The Big O”) Olsen, has weighed-in, urging Boss Hoss second-look for 6699s, and ATL picks up her commentary.

“Nina E. Olson, ‘IRS Administrative Policy and Recent Litigation Weaken Supervisory Approval Requirement for Penalties’, Taxpayer Advocate Service: NTA Blog (Oct. 4, 2017),  In the quoted article, the National Taxpayer Advocate seems to be arguing what the law and IRS practice should be, not necessarily what they are.  If ATL means to argue what the law should be, then its argument would be properly addressed to Congress.  We attempt here to discern ATL’s contention about what the law is.” 152 T. C. 8, at p. 25, footnote 5.

Judge David Gustafson, obliging though he is, is unwilling to defer to The Big O’s views about the weaknesses of present law, leaving that to Congress. As this is a non-political blog, I will not say “Best of luck with that.”

If IRS should address good faith and reasonable cause pre-chop, as The Big O and ATL seem to state, those are affirmative defenses to be raised at a CDP; ATL did, so review is de novo. ATL and those similarly electronicuted must fight it out at a CDP and at Tax Court, rather than have a pre-chop Boss Hoss review.

Sections 6651 and 6751 deal with penalties based upon tax due. With a Sub S, barring FICA/FUTA/ITW, there is no tax due. So 6699 is based entirely on number of shareholders and a fixed sum, regardless of what the 1120S shows or doesn’t show.

ATL didn’t put in any facts showing reasonable cause, and the Section 6699 regs don’t define that term, but analogies to Section 6651 “ordinary business care and prudence” plus facts-and-circumstances fit Judge Gustafson’s bill. And ATL has only the Michael Corleone gambit for that.

ATL says the shareholders paid what they were supposed to pay, and ATL didn’t owe anything anyway. So no hurt, no foul.

“ATL cites no authority in support of its claim that the penalty should be waived on the grounds that its two shareholders were aware of the information to be shown on the return.  Section 6699 does not include a condition of harm before the penalty is imposed; it simply imposes a penalty when the filing is late (without reasonable cause).  A taxpayer may not disregard a filing deadline and be excused from this penalty simply because it reckons that no harm was done.” 152 T. C. 8, at p. 18.

While IRS credited a previous year’s overpayment to the Section 6699 chop before giving ATL the NITL, Section 6330(a)(1) only bars grabbing stuff before issuing NITL, not crediting.

Looks like the Boss Hoss sign-off has been electronicuted too.

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