In Uncategorized on 08/19/2022 at 12:11

I’m using the English version of the famous Irish organization to highlight an order from STJ Adam B. (“Sport”) Landy, Lil Orbits, Inc., Docket No. 12654-20SL, filed 8/19/22. IRS wants summary J, of course.

A colleague was interested in STJ Sport Landy’s bow-out in a Rule 52 motion to strike in Garden Lakes Estates, LLC, Garden Lakes Estates Holdings, LLC, Tax Matters Partner, Docket No. 3052-21, filed 8/17/22. I passed, in that the order from Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan merely handed the strike motion over to STJ Peter (“HB”) Panuthos, without explanation. And while I’m admittedly cheap not to spend the three bucks for the motion papers, I’m also not sufficiently insomniac to read the 448 (count ’em, 448, because I won’t) pages seeking recusal. The colleague aforesaid, much more free-handed and patient than I, told me he ordered the motion papers from the Glasshouse Copycats; probably a fascinating read.

Back to business.

In Lil Orbiters, STJ Sport Landy reiterates the longstanding rule: the taxpayer, and only the taxpayer, bears ultimate responsibility for timely filing returns. The Lil Orbiters, apparently a Sub S, were late four (count ’em, four) times, because their trusty accountant had cancer and a stroke. They seek good-faith exemption from the Section 6699 $195 per shareholder chop.

No go.

“Whether the return preparer is healthy or ill does not change the taxpayer’s responsibility. See Enis v. Commissioner, T.C. Memo. 2017-222 (holding that a return preparer’s illness and petitioner’s transition to a different return preparer did not constitute reasonable cause for the return’s late filing), see also Estate of Scull v. Commissioner, T.C. Memo. 1994-211. It was petitioner’s responsibility alone to ensure that the tax returns were timely filed, which it failed to do. As a result, the returns for [Years B and C] were filed late. It can hardly be said that petitioner exercised ordinary business care and prudence in these circumstances. Thus, as a matter of law, petitioner is liable for the penalty assessed under section 6699(a). Respondent prevails on this issue for taxable years [B and C].” Order, at p. 6.

For the Enis case, see my blogpost “The Frozen Spouse,” 11/16/17.

The Lil Orbiters conceded Year A, so all that’s left is Year D. And it’s an interesting question. The return for Year D was due September 15 (on extension); it was mailed October 15, but was received by IRS October 19 (which both sides agree). Now the chop is $195 per shareholder per month or fraction. So if mailed-is-filed applies (Section 7502), there’s a one month chop. But if received-is-filed, then two months. Which is it?

“Under section 7502(a), the date of mailing will only be considered the date of filing if the return is mailed on or before the date it is due, if it is mailed at any subsequent date, the return will be deemed filed when it is received by the IRS. Petitioner mailed its return for [Year D] on October 15… well after the September 15…. As a result, section 7502(a) does not apply, and the general rule that the date of filing is the date the return was received by the IRS controls.” Order, at pp. 6-7. (Citation omitted).

So summary J for IRS? Yes, except.

The Lil Orbiters are entitled to a CDP hearing before an SO who has had no prior involvement.

“In her Case Activity Record, SO J indicated that she had prior involvement with petitioner for the tax type and tax years associated with the CDP case and would obtain an appropriate waiver. However, no waiver exists in the record. Respondent asserts that SO J’s statement of prior involvement was an error made in entering information into its internal database. Petitioner maintains that whether SO J had prior involvement remains a question of material fact. Taxpayers have a right to a hearing conducted by an employee or officer of IRS Appeals who was not involved with respect to the tax for the tax periods to be covered in the hearing unless the taxpayer waives the requirement. Treas. Reg. §§301.6330-1(d)(1), (d)(2), Q&A-D4, Q&A-D5. Construing the facts in the light most favorable to petitioner and constrained to the administrative record…, there remains a question of material fact as to SO J’s prior involvement, and summary judgment cannot be granted with respect to whether SO J did not abuse her discretion during the CDP hearing.” Order, at p. 7. (Name omitted).

IRS gets summary J that the Lil Orbiters can’t contest liability for tax or chops. But STJ Sport Landy sends them back to Appeals for a supplementary hearing on whether SO J abused her authority by hearing a matter when she had prior involvement.


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