The Tax Court denied relief from late filing,[1] late payment[2] and underpayment of estimated tax[3] penalties to a physician in the case of Bennett v. Commissioner.[4]

The opinion outlines the facts related to the returns and taxes in question as follows:

Petitioner, a physician, resided in Iowa when she timely filed her petition. During 2017 she worked as an independent contractor for AB Staffing Solutions. She received income that was documented by third-party reports.

Petitioner filed an extension for time to file her 2017 return on April 15, 2018; however, she failed to file her 2017 income tax return. Respondent prepared a substitute for return for 2017 and executed Form 13496, IRC section 6020(b) Certification on February 18, 2020.

Petitioner failed to make payments of estimated tax for her 2017 income tax liability and failed to pay her tax liability.[5]

The issue was whether the taxpayer had reasonable cause for her failure to file the returns in question, as well as failing to pay the taxes involved.

The taxpayer argued that the following circumstances justified her late filing and failure to make timely payments of her federal taxes for the years in question:

Petitioner testified that she worked fewer hours in 2018 and 2019…. She further testified that she thought she would have a refund from prior years that could be used towards her 2017 tax liability.[6]

The opinion outlines the standard necessary to show reasonable cause for failure to file a federal tax return:

Section 6651(a)(1) imposes an addition to tax if the taxpayer failed to file an income tax return by the required due date, including an extension of time for filing. Whether “reasonable cause” and lack of “willful neglect” exist is a question of fact, and the burden of establishing these facts is on the taxpayer. United States v. Boyle, 469 U.S. 241 (1985). To prove reasonable cause for a failure to timely file, the taxpayer must show that he or she exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time. Crocker v. Commissioner, 92 T.C. 899, 913, (1989); Treas. Reg. § 301.6651-1(c)(1).

A taxpayer may have reasonable cause for failure to timely file a return where the taxpayer experiences an illness or incapacity that prevents the taxpayer from filing the return. Boyle, 469 U.S. at 248 n. 6; Jordan v. Commissioner, T.C. Memo. 2005-266. A taxpayer’s illness or incapacity generally does not prevent the taxpayer from filing returns where he or she is able to continue business affairs despite the illness or incapacity. Jordan, T.C. Memo. 2005-266.[7]

Unfortunately for this taxpayer, the opinion notes that, despite working fewer hours, “she was still able to function as a physician.”[8] As such, the opinion holds:

Petitioner did not show reasonable cause and is liable for the addition to tax pursuant to section 6651(a)(1) for the year in issue.[9]

The Court was no more impressed with her request to find she had reasonable cause for her failure to timely pay the taxes due.

Section 6651(a)(2) imposes an addition to tax for failure to timely pay the amount of tax shown on a return, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. This addition to tax applies only when an amount of tax is shown on a return. §§ 6651(a)(2), (g)(2). When a taxpayer has not filed a valid return, the section 6651(a)(2) addition to tax may not be imposed unless the Secretary has prepared a substitute for return. See Wheeler v. Commissioner, 127 T.C. 200, 210 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008). Respondent introduced into evidence a document that qualifies under section 6020(b) as a substitute for return for 2017. See Cabirac v. Commissioner, 120 T.C. 163, 170-72 (2003), aff'd without published opinion, 94 A.F.T.R. 2d (RIA) 2004-5490 (3d Cir. 2004).

Respondent has shown that petitioner has failed to pay her federal income tax obligation for 2017.

Petitioner has not shown reasonable cause and is liable for the addition to tax pursuant to section 6651(a)(2).[10]

As well, the Court found no reason to grant relief on the estimated tax penalties, noting that there is no general relief for this penalty based on reasonable cause provided for in the law:

Section 6654(a) imposes an addition to tax on underpayment of estimated tax unless an exemption applies. Respondent’s burden of production under section 7491(c) with respect to the section 6654(a) tax has been met since petitioner had income tax liability for 2017 and made no estimated tax payments for that year. Generally, no reasonable cause exception exists for the section 6654(a) addition to tax. Treas. Reg. § 1.6654-1(a)(1).

Petitioner does not meet any of the statutory exceptions under section 6654(e). Therefore, petitioner is liable for the addition to tax pursuant to section 6654(a).[11]

[1] IRC §6651(a)(1)

[2] IRC §6651(a)(2)

[3] IRC §6654

[4] 1, July 5, 2022, https://app.dawson.ustaxcourt.gov/documents/2af74a4a-e18b-4eff-9ecf-1eba571b4e77?AWSAccessKeyId=ASIA6IROMRYRELVPFMMG&Expires=1657484623&Signature=TxVewHv5n36Saeq6pdKALyzlBK8%3D&x-amz-security-token=IQoJb3JpZ2luX2VjEP3%2F%2F%2F%2F%2F%2F%2F%2F%2F%2FwEaCXVzLXdlc3QtMSJHMEUCIEmIGecxb2jI76DBZ4JmIvSRWQlXivVxOVnHBupShx7wAiEAzfDq6EijClDhRDCmu1%2FnRauHmV%2FVN83TD6hsX8I9HHcqmgIINRABGgw5ODA0MjM1NzcxMjIiDAFdss5NTFn4VlOUVCr3AZ0VTKeWFiMErpN1b3CTQ0Y6CH0w36KFW9tOlthcJk2t126uGT0WlSsvi6DAtNGgl0moOrM4UhbW2lT1bWjG2sWvLxj3vDWfwaUzyib5G2F%2FyQ4czeslKWwxCxrWq5fNJckxKamfCXGK4Y7YqrOQrr7sxhKvmNwQZZd6z9zs0wG83EYgB%2FK2xNBgS7%2F0aM9N7oQnVxVcQ6fPftYQuu3h%2F6i4apoE2jFwp824kVjZ6z%2BgOzhqYFRU1SaakJsk6Gsjyhq3EsnnmGFhzjVZ7FS51NEloTc%2FggJAjilGzg7iB%2B1AXgxW2QOisL35LndYHZdSDNkESljcGCcw0%2BmslgY6mgFRo08NfMlUg66x3F1XzmYbwL2rhQpDvaoHE6RNVjSj9RS6HsCZ5HeJQ%2BvqXTvPWfAAWm9Muu89ja%2FbofT5vYqzlmmPEFQWuLiyjGqYAEpT4Hy31Gu2k9m8rgQfBPcDi0PhSy1RRZcHtE37JVWEeK0VEvJ8q0NGJvLGkuEY3wwTQwOQqzqoZpcTDyvQrv3uFhoSP%2BKsKLy21B%2Bf (retrieved July 10, 2022)

[5] Bennett v. Commissioner, Case No. 7885-21, Bench Opinion, July 5, 2022

[6] Bennett v. Commissioner, Case No. 7885-21, Bench Opinion, July 5, 2022

[7] Bennett v. Commissioner, Case No. 7885-21, Bench Opinion, July 5, 2022

[8] Bennett v. Commissioner, Case No. 7885-21, Bench Opinion, July 5, 2022

[9] Bennett v. Commissioner, Case No. 7885-21, Bench Opinion, July 5, 2022

[10] Bennett v. Commissioner, Case No. 7885-21, Bench Opinion, July 5, 2022

[11] Bennett v. Commissioner, Case No. 7885-21, Bench Opinion, July 5, 2022