Penalty Abatement: Reasonable Cause 

Posted on by katemley

IRC 6724


While the taxpayer failed to succeed on its reasonable cause arguments for abatement of penalties in Dealers Auto Auction of Southwest LLC v. Comm’r, at T.C. Memo 2025-38, filed April 28, 2025, the case provides some insight regarding IRS denials of abatements based on nondelegable duty arguments.  This practitioner has had many information return penalty cases over the past few years, so it is not surprising to see a case related to a penalty associated with filing an information return. In this case, the return at issue was a Form 8300 which is required to be filed to report cash payments received by a trade or business when the cash payment is over $10,000.  The taxpayer regularly sells automobiles through an auction house and regularly receive over $10,000 cash payments from buyers.  The case explains all of their processes and filings.  Unfortunately for the taxpayer, they had a bumpy filing history.  They seem well aware of the requirement to file, but for a variety of reasons, could not completely comply.  Of interest in this summary is the Court’s commentary on the IRS position that the duty to file an information return is a nondelegable duty and thus essentially no abatement of penalties can be had.  The Court found the IRS’s argument to be “unpersuasive.” The taxpayers in this case had some facts associated with reliance on software.  The IRS argued that even if the taxpayer relied on software, it would not qualify for reasonable cause because the duty to file information returns is not delegable.  While the taxpayer ultimately failed to obtain relief, the Court made an effort to illustrate that the IRS conclusion was incorrect.  The Court stated that software malfunctions can qualify as a failure beyond the filer’s control when it is shown the taxpayer used the software correctly.  Additionally, there is no preclusion in Treasury Regulation Section 301.6724-1(c)(1)(ii) to find that a software malfunction could be a failure beyond the filer’s control, and further, the Internal Revenue Manual provides at 20.1.7.12.1(24) that failures related to software and hardware can be failures beyond the filer’s control for purposes of a reasonable cause defense. It may take effort, but the point of this is that it is possible to overcome the U.S. Supreme ruling of United States v. Boyle, 469 U.S. 241(1985) that is the IRS go to for the premise that a taxpayer cannot be excused for timely filing by relying on an agent. 

Installment Agreements and Tax Liens

Posted on by katemley

I.R.C. Section 6320

Federal Tax liens may remain in place where a taxpayer’s liability during her installment agreement period is above the amount the IRS requires in the Internal Revenue Manual (IRM), the U.S. Tax Court ruled in Jill Beth Savedoff v. Comm’r of Internal Revenue, filed August 31, 2020 at Docket No. 4346-18L. The taxpayer created liabilities from self-employment on two different tax periods. She established a payment agreement, but defaulted. The IRS filed a Notice of Federal Tax Lien (NFTL). The taxpayer filed a Collection Due Process (CDP) hearing request on the basis that her installment agreement was wrongfully terminated and the lien notice was not properly served. Apparently, the taxpayer moved and did not receive a notice of the filing of the lien. The Court ruled that the taxpayer did not provide the IRS with a clear and concise notification of a different address. As for the lien withdrawal, the Court reviewed the guidelines allowing for the withdrawal of a NFTL. The taxpayer essentially argues that the lien should have been withdrawn if a second installment agreement was established. Both the Tax Court and Treasury Regulations provide that nothing requires the IRS to withdraw the NFTL because of the establishment of an installment agreement. While there are provisions to withdraw the NFTL if the balance is less than $25,000 and the taxpayer establishes a direct debit installment agreement, the taxpayer in this situation simply owed more and when offered to establish a direct debit installment agreement, passed on that option.