Taxpayer's Care of Terminally Ill Wife Is Reasonable Cause for Failure to File Return and Pay Tax.

(Parker Tax Publishing December 9, 2015)

A taxpayer had reasonable cause for failing to timely file his tax return and pay the tax due where he was busy caring for his dying wife. However, because the penalty for failing to make estimated payments is generally mandatory, the taxpayer was liable for that penalty. Ibarra v. Comm'r, T.C. Summary 2015-70.

Background

In early 2011, Baudelio Ibarra was laid off from work. At about the same time his wife, who was already in ill health from a stroke and other chronic medical conditions, was diagnosed with pancreatic cancer after complaining about a pain in her side for some time. She died later that year at the end of the summer. During the last months of her life, Ibarra's wife required round-the-clock care, which Ibarra, together with other immediate family members, provided full time in his home. Although Ibarra had some health insurance, it was inadequate given the medical care that his wife required, and the family's resources were depleted. At that point, Ibarra could no longer afford to pay for the oncologists and other medical specialists that his wife required, and her cancer treatment was relegated to naturopaths and other similar nonmedical providers who were willing to either reduce their fees or donate their services. Those methods proved to be ineffective in treating the cancer and, after a period of hospice care, also at home, Ibarra's wife died.

Ibarra was distraught after the death of his wife, to whom he had been married for over 40 years, and it took some time for him to come to terms with her passing. After some period had elapsed and to help deal with his grief, Ibarra trained to become a medical interpreter, and thereafter he both volunteered his time and worked for a company in that capacity.

During the course of his marriage, Ibarra's practice was to file joint returns with his wife. Specifically for 2009, he filed a joint return and reported tax of approximately $4,000. However, for 2010, Ibarra did not file any return, nor did he pay any tax other than through withholdings. He did file a return for 2011. The IRS assessed penalties for failing to timely file a return and pay the tax due for 2010. The IRS also assessed a penalty under Code Sec. 6654 for failure to make estimated tax payments for 2010. Ibarra argued that he should be excused from paying the penalties because he had reasonable cause for the failures to file his return and pay the tax and estimated tax payments.

Analysis

The Tax Court held that Ibarra's failure to timely file his return and pay the resulting tax was due to reasonable cause and, thus, he was not liable for the related penalties under Code Sec. 6651(a). However, because the imposition of the addition to tax for failing to pay estimated tax payments is generally mandatory whenever prepayments of tax do not equal the amount required by Code Sec. 6654(a), the court concluded that Ibarra was liable for that penalty.

In determining that Ibarra had reasonable cause for failing to file his return and pay the tax due, the court noted that it has held in the past that the illness of a taxpayer or a member of his or her immediate family may be reasonable cause for late filing if the taxpayer demonstrates that he or she could not file a timely return because of the illness. The court also noted that the rules of federal evidence generally acknowledge that the loss of a spouse, particularly one of long standing, has demonstrable emotional, mental, and physical affects. The court reviewed the circumstances surrounding Ibarra's failure to file his return and pay the tax due and concluded that he met the standard for reasonable cause due to his wife's illness.

For a discussion of the abatement of penalties due to reasonable cause, see Parker Tax ¶262,127. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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