- 36 -
Petitioner contends that he was not required to file a tax return
for 1992. In support of that contention, petitioner asserts:
If there was no income there was no failure to file.
Even if there was income, the failure to file penalty
is not applicable where the failure to file is due to
reasonable cause and there is no willful neglect. The
Petitioner did not consider the [$150,000] assistance
payment income and his tax account[ant] did not con-
sider it income. The Petitioner['s] livelihood was
destroyed and it was reasonable for them to conclude
that any payment relating to that law suit would also
be excludable from income. To eliminate the penalty
the Petitioner does not have to win but only have a
reasonable basis for his actions.
Respondent counters:
Petitioner is not disputing the fact of nonfiling, he
is apparently contending that his failure to file was
due to reasonable cause. In his defense, petitioner
contends that he and his return preparer did not know
what the tax treatment of the assistance payments
should have been. Petitioner and his return preparer
failed to consult a tax attorney, the Internal Revenue
Service, or a certified public accountant concerning
the tax treatment of the 1992 assistance payment.
Moreover, at the time * * * he considered the issue of
the tax treatment of the assistance payment, peti-
tioner's return preparer had never encountered an
assistance payment in the preparation of an income tax
return. * * * Such a defense is no defense at all.
Clearly petitioner was under a nondelegable duty to
seek competent tax advice rather than conclude that he
did not need to file since he did not know what the tax
treatment of the payment should be. * * *
The addition to tax under section 6651(a)(1) does not apply
where the failure to file was due to reasonable cause and not to
willful neglect. See sec. 6651(a)(1). Reasonable cause under
section 6651 means the exercise of ordinary business care and
prudence. See sec. 306.6651-1(c)(1), Proced. & Admin. Regs.
Page: Previous 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 NextLast modified: May 25, 2011