Fifth Circuit Affirms Liability for Failure to File, Pay Penalties

PER CURIAM: ^*

Taxpayers W. Todd Hoeffner and Johnanna Hoeffner (the "Hoeffners") appeal the United States Tax Court's Order and Decision granting summary judgment in favor of the Commissioner of Internal Revenue (the "Commissioner") and sustaining the IRS Office of Appeals' ("Office of Appeals") determination. The issue on appeal is whether the Hoeffners had reasonable cause for failing to timely file their 2008 tax return and timely pay their 2008 tax liability. Reviewing the record, we AFFIRM.

On April 29, 2010, after the criminal trial concluded, Mr. Hoeffner, with the Assistant U.S. Attorney's agreement, filed a motion requesting the court to amend its order allowing contact with Mr. White solely to complete the tax returns. The district court granted the motion and the Hoeffners filed the 2008 tax return and paid the delinquent taxes in August 2010, six months after the extended deadline to file the return.

As a result of the belated tax return filing and tax payment, the IRS assessed additions to tax and interest. The Hoeffners requested abatement of the assessed balance, but the IRS denied the request based on a lack of reasonable cause. The Hoeffners then appealed to the IRS Office of Appeals and requested a Collection Due Process ("CDP") hearing. Through telephonic hearings and written correspondence, the Office of Appeals determined that the Hoeffners did not show reasonable cause for the delays and, as such, were liable for the penalties assessed. The Hoeffners filed a petition with the Tax Court challenging the Office of Appeals' determination. The Commissioner filed a motion for summary judgment, to which the Hoeffners responded and filed a cross-motion. The Tax Court, finding no fact issues, granted summary judgment in favor of the Commissioner, denied the Hoeffners' cross-motion and sustained the Office of Appeals' determination.

Issues related to the underlying tax liability are also reviewed de novo. Goza v. C.I.R., 114 T.C. 176, 181-82 (2000).

First, they contend that they were unable to file the return timely because a district court's order barred them from communicating with their accountant, Mr. White. To further support this argument, the Hoeffners assert that they were unable to hire another accountant to prepare the return because their tax situation was complex and only Mr. White possessed the necessary documents and records. This argument fails because there is no evidence that the Hoeffners made the district court aware of their tax predicament or asked the court for permission to communicate with Mr. White either (1) solely for the purpose of preparing their tax return; or (2) to authorize Mr. White to provide their tax records to another accountant. The Hoeffners contend that they did not ask because, in light of the Government's previous allegations of Mr. Hoeffner's improper contact with witnesses, they feared further antagonizing the court. While the court order prohibited improper contact with witnesses, it is a different matter entirely to ask the court for permission to comply with IRS mandates. In fact, the district court, when asked, did modify its order, allowing the Hoeffners to communicate with Mr. White for the sole purpose of completing their taxes. This argument also fails because neither the unavailability of records nor complex tax affairs constitutes reasonable cause. This court in Ferguson v. Commissioner, 568 F.3d 498, 501 (5th Cir. 2009), held:

Next, we disagree with the Hoeffners' argument that their preoccupation with the extensive litigation amounted to reasonable cause for the late filing. Rather, we agree with the Sixth Circuit's holding in Morgan v. Commissioner, 807 F.2d 81, 83 (6th Cir. 1986), that involvement in extensive litigation does not constitute reasonable cause or prevent the imposition of additions to tax.

Last, we are unconvinced by the Hoeffners' assertion of reasonable cause that they relied on the advice of their attorney. An IRS memo states that a taxpayer's reliance on the advice of a professional would constitute reasonable cause if the taxpayer proves: "by a preponderance of the evidence that: (1) the taxpayer reasonably believed the professional was a competent tax adviser with sufficient expertise to justify reliance." Crimi v. Commissioner, T.C. Memo. 2013-51, at *35 (2013). The Hoeffners admit that Mr. Flood did not give them tax advice; rather he advised them regarding the criminal trial and advised them not to file an incomplete or incorrect return. Thus, the Hoeffners did not believe Mr. Flood was a competent tax adviser and their reliance on his advice for tax matters is unjustified.

Clearly, the Hoeffners did not demonstrate reasonable cause for not timely filing their 2008 tax return.