No, not a tale of golfing misadventures, Dealers Auto Auction of Southwest LLC, T. C. Memo. 2025-38, filed 4/28/25 claims their software played them false, so they missed filing and providing the payors with 266 (count ’em, 266) Forms 8300 Report of Cash Payments Over $10,000 Received in a Trade or Business.

IRS wants a nonassessible chop of $118K, so no opportunity to contest liability prior to CDP.

IRS has gigged DAAS once before year at issue for nonfilings and nonproviding, so they invested in some software. Their argument is reasonable cause, but as they’re an LLC, Section 7491(c) BoProd doesn’t help (individuals only).

DAAS seems to think the software filed the 8300s with IRS, but it turns out it just printed them, even though the developer claims they subsequently improved the system; exactly how never gets into the record.

While software failure isn’t a cure-all for failed reporting, Judge Ronald L. (“Ingenuity”) Buch doesn’t rule it out. True, accuracy chops are only avoided when petitioner proves a programming fault, but “Treasury Regulation § 301.6724-1(c)(1) does not preclude a finding that a software malfunction could be a failure beyond the filer’s control. The regulation’s only mention of technology-related failures is ‘filing on magnetic media.’ Treas. Reg. §301.6724-1(c)(1)(ii). While magnetic media is not involved here, this regulation makes clear that a technological failure may be sufficient to give rise to reasonable cause. The Commissioner acknowledges in his internal guidance that failures related to software and hardware can be failures beyond the filer’s control for purposes of the reasonable cause defense. See, e.g., Internal Revenue Manual 20.1.7.12.1(24) (Dec. 16, 2022). The Commissioner’s Internal Revenue Manual lists ‘relied upon an internal computer system that encountered major hardware and/or software problems’ amongst failures beyond the filer’s control for purposes of the reasonable cause defense to failure to file an information return. Id.” T. C. Memo. 2025-38, at pp. 8-9.

Given the use of e-filing, the reference to “magnetic media” is quaint.

IRS also argues that the duty to file and provide is nondelegable, but DAAS isn’t claiming they delegated the duty to file and provide. They say they have to file, but the software played them false by misleading them that the software filed.

There’s no evidence from DAAS of how the software failed. The software instructions say it will print the 8300s, not that it will file them as well.  And the later improvements to the software don’t state that they rectified any failure.

“Even assuming Dealers Auto met its burden to show a failure beyond the filer’s control, the record does not support a finding that Dealers Auto acted reasonably before or after the failure. For example, Dealers Auto did not establish that it was correctly using the software or that data was being entered correctly into the system. While it is not necessary to show that Dealers Auto made every data entry correctly, the record offers the Court no insight as to Dealers Auto’s installation, training, or use of the software.

“Similarly, Dealers Auto did not establish that it took reasonable steps to foster compliance. Dealers Auto argues that it reasonably believed the software was working as intended because it was generating some information returns. But the record shows that Dealers Auto software prepared only 116 Forms 8300 in [year at issue]. The record also shows that Dealers Auto was required to file at least 212 Forms 8300 in [year they were gigged]. That reduction in the number of forms should have placed Dealers Auto on notice that its software was not performing as intended. And Dealers Auto offers no explanation as to why the reduction in the number of forms would have appeared reasonable. Absent any explanation, we are not persuaded that Dealers Auto reasonably relied on its software.” T. C. Memo. 2025-38, at p. 10.

Judge Ingenuity Buch has provided a checklist for proving a software fault defense. Read and heed.