CCA 201116018: IRS advised on a late-filing penalty and reasonable cause

Plain-English summary

Chief Counsel Advice evaluated asserting a penalty under IRC § 6651 for failure to timely file redacted gift tax returns. It explained that reasonable cause requires proof of ordinary business care and prudence, while willful neglect involves a conscious, intentional failure or reckless indifference. The taxpayer's illness might have contributed to the non-filing, but the submitted facts were not clear and the taxpayer had completed a real estate transaction that produced income. Based on the limited facts, the IRS stated that asserting the penalty was reasonable, while giving the estate another opportunity to establish reasonable cause administratively.

Ruling snapshot

• Question: Do the submitted facts establish reasonable cause for the late filing of the gift tax returns?
• Outcome: Advice given
• Key authorities: IRC § 6651; United States v. Boyle; E. Wind Indus., Inc. v. United States; Higbee v. Commissioner

Full text (IRS public release)

ID: CCA_2011031714543744 Number: 201116018
Release Date: 4/22/2011
Office: ----------------------------
UILC: 6651.00-00

From: ---------------------
Sent: Thursday, March 17, 2011 2:54:38 PM
To: ---------------------
Cc: ------------------
Subject: 6651(a)(1) Question

You asked for our thoughts on asserting the section 6651(a)(1) penalty for the taxpayer’s failure to file the --------and ------- gift tax returns. Section 6651(a)(2) imposes a penalty for the failure to file a return by the prescribed due date unless it is shown that the failure is due to reasonable cause and not due to willful neglect. Reasonable cause requires the taxpayer to satisfy the burden of proving that the failure to timely file was in fact due to reasonable cause and not willful neglect. Reasonable cause requires the taxpayer to demonstrate that he exercised ordinary business care and prudence but was nevertheless unable to file/pay within the prescribed time. Willful neglect involves a conscious, intentional failure or reckless indifference. See United States v. Boyle, 469 U.S. 241, 245 (1985); E. Wind Indus., Inc. v. United States, 196 F.3d 499, 504 (3d Cir. 1999); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).

One of the factors that may be used, in part, to evaluate whether the taxpayer exercised ordinary care is whether circumstances beyond the taxpayer’s control contributed to the non-filing of the return. Here, the taxpayer’s illness may have played a role in the non- filing but the facts you have submitted do not make it entirely clear. Further, the taxpayer was competent enough to engage in a real estate transaction during ------- and received income from the sale.

Based on the limited facts that you provided, it is reasonable to assert the section 6651(a)(1) penalty with the respect to the ------- and ------- gift tax returns because they were not timely filed and the facts submitted do not prove reasonable cause. The estate will be given an additional opportunity to show reasonable cause at the administrative level.