The Tax Research Process has 7 steps: 1. Identify all relevant facts.

The Tax Research Process has 7 steps:

1. Identify all relevant facts.

2. Clearly state problem to be solved.

3. Locate applicable tax authority.

4. Evaluate the relevance of the authorities.

5. Determine possible solutions.

6. Determine the recommended solution.

7. Communicate results.

Example:

Research Problem

1. The taxpayer is assessed a penalty if he or she fails to file a return, files it late, and/or fails to pay the tax due. These penalties do not apply if the taxpayer can prove a reasonable cause for the error. One question concerning reasonable cause is whether the taxpayer meets the reasonable-cause requirement if he or she relied on the adviser to file the return or accepted the adviser’s incorrect filing date?

The Supreme Court considered this question in Boyle (469 U.S. at 246) and the District Court decided this exact issue in Intress vs US. (404 F.Supp.3d 1174 (2019). In Boyle, the taxpayer relied on the tax advisor to file an estate tax return and the return was accidentally filed late. In Intress, the same fact pattern as the Collins was presented and the court found the penalty applied. The Supreme Court in Boyle ruled against the taxpayer, stating that the return due date is a fixed date. Therefore, it is a bright line and a taxpayer cannot reasonably fail to file on time by relying on an adviser to handle the paperwork. In Intress, the taxpayer argued that the Boyle case cannot be considered because e-filing did not exist at that time. In today’s environment, the taxpayer relies on a CPA to e-file the extension and return because the CPA has the proper software. The district court, however, found that Boyle applied to Intress because, like the taxpayer in Boyle, they were not required to use tax preparation services.

Based on these decisions, it is reasonable to assume that the taxpayer will not be able to prove reasonable cause based on reliance on a tax adviser if the return was not filed on time or the liability was not paid. The IRS will penalize the taxpayer in these situations. Therefore, the Collins will not have reasonable cause and will not be able to recoup the penalty.

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