Where Not to Leave the Joint Return

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The case of Plato v. Commissioner, T.C. Memo 2018-7 involves whether petitioner is liable for penalties for filing his return late. The petition says that the IRS determined a deficiency in Mr. Plato’s taxes for the year in issue of $165,133.80. You can see that with a liability of that size filing late could be quite costly. Although the defense was novel, it is not successful or well thought out.

Mr. Plato separated from his wife in December 2007 and they have lived apart since the time of the separation. He prepared a joint return for 2007 and took it to his wife’s separate residence to get her to sign it on April 15, 2008. Perhaps the case would have turned out better had he visited her a little bit earlier. According to Mr. Plato, he left the return and a check for $46,073 (the amount of the liability reported on the return) “under the mat at the front door” of her residence. He left it there for her to sign and mail the return to the IRS; however, there is no evidence that she did so. The opinion does not say whether Mr. Plato expected his wife to be home when he went by with the return or whether he regularly left material for her under the door mat. Since the Court found that no one ever tendered the check, someone may want to look under that mat now.

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The opinion states that Mr. Plato did not request an extension to file but he “asked his wife to request an extension.” It did not say whether this request was made in writing with the package under the mat or was through a separate means of communication. You would think that he might have followed up with her and followed up with his bank account which would not have had $46,073 withdrawn to pay the check, but the opinion is silent on what he did after dropping off the return under her mat.

Eventually, the IRS grew tired of waiting for the former Mrs. Plato to look under her doormat and it prepared a substitute for return for him for 2007. (It is silent about what happened with respect to his wife and that is appropriate though it leaves details about his case unstated.) After the IRS issued its notice of deficiency with respect to the 2007 year, Mr. Plato submitted a return with the filing status of married filing separate and he tendered a check of $43,490. He also filed a Tax Court petition because the notice of deficiency would have contained penalties and perhaps additional taxes. The parties reached agreement on the tax liability with the IRS apparently accepting the late filed return; however, Mr. Plato sought removal of the late filing penalty.

He argued that leaving the signed joint return under the doormat of his estranged’s wife’s residence together with a check for full payment together with his long history of filing compliance should satisfy the reasonable cause exception to the penalty. We have posted before about the IRS administrative rule regarding first time abatement. The opinion does not address this administrative rule since it is a rule that the IRS can apply but one that does not save a taxpayer in a judicial proceeding. If Mr. Plato would have qualified for first time abatement, he should have worked that out with the IRS during the examination phase of his case. The fact that he did not file a return until after the notice of deficiency was issued suggests that he was not working with the IRS during the examination phase.

Mr. Plato found a case on which he relied for his argument that his prior timeliness coupled with his trip to the doormat should excuse him from the penalty; however, the case on which he relied, Willis v. Commissioner, 736 F.2d 134 (4th Cir. 1984), in which the 4th Circuit overturned a decision of the Tax Court, was itself effectively overruled a year later by the case of Boyle v. Commissioner, 469 U.S. 241 (1985). Additionally, the Tax Court pointed to its own non-precedential opinion, Sutherland v. Commissioner, T.C. Memo 1991-619, holding that failing to obtain an estranged spouse’s signature on a joint return does not necessarily constitute an acceptable excuse for failing to timely file. A taxpayer who is separated from their spouse faces a difficult situation with respect to the filing of a joint return. The joint return may significantly reduce the tax liability; however, the other spouse may have many concerns about signing the joint return and signing on to joint and several liability with a person in whom their trust has dissipated. It is understandable to have discussions seeking to persuade an estranged spouse to sign a joint return. Leaving the joint return under the doormat on the last date to timely file does not evoke the kind of sympathy necessary to avoid a penalty. The decision provides no surprises but an interesting fact pattern and a cautionary tale.

Despite losing the failure to file penalty and despite going pro se against three government attorneys, all was not lost for Mr. Plato. The IRS also asserted an estimated tax penalty against him. The Court found that the IRS did not carry its burden of production with respect to his prior year’s liability and the application of exceptions to this penalty in his circumstances. So, it did not sustain the estimated tax penalty. The Court makes no mention of the Graev issue. I cannot tell if the failure to mention Graev results from a failure of Mr. Plato to raise the issue (not all Tax Court judges seem to affirmatively require the IRS to prove the necessary approvals were secured) or a showing of proof that the Court felt unnecessary to discuss.

It’s now been over a decade since Mr. Plato left the check under the doormat. I hope he knows what happened to it. The opinion leaves it as an unsolved mystery.

 

Comments

  1. Norman Diamond says:

    USPS sometimes leaves mail under doormats when mail doesn’t fit through mailslots and isn’t registered. Sometimes such mail gets stolen.

    A thief wouldn’t have much use for the tax return other than to use the data for identity theft, but thieves don’t usually return stolen items with an apology saying “I have no use for your stuff, here it is”. When exceptions get reported in news articles, the reason they’re news is that they’re exceptions. Normally thieves throw away useless items or auction them off.

    Though of course the petitioner in this sad story should have filed a Form 4868 which doesn’t require signatures, and should have filed a protective return with payment while hoping to find some way to get the joint return filed.

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