No Quick Exit: Judgment on the Pleadings Denied in A Tax Shelter Penalty Case

tax shelterSections 6111 and 6112 of the Internal Revenue Code currently impose certain reporting obligations on individuals who are involved in “reportable transactions,” including an obligation to file information returns and maintain lists of participants. The current code provisions were substantially revised in 2004. Historically, Sections 6111 and 6112 were aimed at “tax shelter organizer[s].” See I.R.C. § 6111(a) (2003). Both the historical and the current versions of Sections 6111 and 6112 of the Code are reinforced by Sections 6707 and 6708 of the Code, which provide for the imposition of significant penalties in the event of a violation.

Last week, a district court issued an interesting decision, denying a motion for judgment on the pleadings filed by a law firm challenging penalties assessed for violations of Sections 6111 and 6112.… Read More

Tax Advice Might Mean Something: the Third Circuit Looks at Reasonable Cause.

The failure to file a timely return or make timely tax payments will trigger penalties under the Internal Revenue Code, but there is a defense: the penalty will not apply if the taxpayer can show “that such failure is due to reasonable cause and not due to willful neglect.” I.R.C. § 6651(a)(1), (2). The relevant regulations indicate that reasonable cause exists if the taxpayer exercises ordinary business care and prudence. Proc. & Admin. Regs. § 301.6651-1(c).
Common sense would then suggest that a taxpayer who does not file a return because his lawyer or his accountant told him that he didn’t need to would have a defense to the penalty for failure to file.… Read More