TaxProf Blog – Bryan Camp: Lesson From The Tax Court: Blind Reliance Is Not Reasonable Reliance (April 19, 2021)

Bryan Camp has published an article on the TaxProf Blog, titled “Lesson From The Tax Court: Blind Reliance Is Not Reasonable Reliance,” which discusses the outcomes of Duane Pankratz v. Commissioner, T. C. Memo. 2021-26 (Mar. 3, 2021) (Judge Holmes) as they pertain to taxpayer reliance on tax professionals. The article begins as follows:

The Tax Code’s complexity is legend.  And logarithmic.  The more complex a taxpayer’s financial affairs become, the more difficult it becomes for even reasonable taxpayers to avoid errors.  In recognition of that, almost all of the major penalty statutes allow taxpayers to avoid penalties by showing that they had reasonable cause for errors found on audit.
When complexity hits a certain level, taxpayers turn to professionals for help.  Sometimes taxpayers think doing so absolves them of responsibility for any subsequent errors.  They think that relying on professional help is by itself reasonable.  Today’s case shows why that is not true.
Duane Pankratz v. Commissioner, T. C. Memo. 2021-26 (Mar. 3, 2021) (Judge Holmes), teaches that whether a taxpayer has reasonable cause to avoid penalties depends on much more than simply relying on a CPA to properly prepare the return or identify missing information.  There, the taxpayer engaged in a variety of business activities through 11 corporate entities.  After audit, the IRS proposed to assess over $10 million in deficiencies and penalties.  That’s a lot of error.  The taxpayer claimed to have a reasonable cause for the error: my tax professionals did not tell me.  Why that claim failed provides the main lesson.  Details below the fold. 

To download the full opinion, click here: Duane Pankratz v. Commissioner, T. C. Memo. 2021-26 (Mar. 3, 2021)

To view the full article, click here: “Lesson From The Tax Court: Blind Reliance Is Not Reasonable Reliance”

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