                                T.C. Memo. 2012-94



                          UNITED STATES TAX COURT



          CHILD ADULT INTERVENTION SERVICES, INC., Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 14518-10L.                             Filed March 28, 2012.



      Richard B. King (an officer), for petitioner.

      Michael W. Lloyd, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


      THORNTON, Judge: Pursuant to section 6330(d), petitioner appeals

respondent’s determination to proceed by levy to collect late-filing penalties

pursuant to section 6652(c)(1)(A) for tax years 2005 and 2007.1


      1
       Unless otherwise indicated, all section references are to the Internal Revenue
Code in effect at all relevant times, and all Rule references are to the Tax
                                                                          (continued...)
                                         -2-

                                FINDINGS OF FACT

      The parties have stipulated some facts, which we incorporate by this

reference. When the petition was filed, petitioner was a corporation created under

the laws of and operated in Oregon.

      Petitioner is a tax-exempt entity under section 501(c). It is required to file a

Form 990, Return of Organization Exempt From Income Tax, or Form 990-EZ,

Short Form Return of Organization Exempt From Income Tax, on the 15th day of

the 5th month following the end of its calendar year. See sec. 6033(a)(1).

      Richard King (Dr. King) founded petitioner and is its president. He is a

forensic psychologist with a bachelor’s and a master’s degree from Western Oregon

University and a doctorate from Northern Arizona University. He provides

counseling services for petitioner in addition to being its president. For the years

1996 through 2008 the compensation that he received from petitioner ranged from

about 35% to about 66% of petitioner’s total revenues.2


      1
       (...continued)
Court Rules of Practice and Procedure. All monetary amounts are rounded to the
nearest dollar.
      2
        More particularly, focusing on the years at issue, for 2005 Dr. King’s
$167,338 of compensation represented about 44% of petitioner’s $382,262 total
revenues, and for 2007 his $138,700 of compensation represented about 61% of
petitioner’s $228,541 total revenues.
                                         -3-

      Dr. King is married to Laura King (Mrs. King). She has a high school degree

and has achieved success in business. Until 2001 she worked for Weyerhaeuser

Co., managing its accounts payable division, which involved accounts payable of

over $1 million a week. Since at least 2001 she has performed administrative

services for petitioner, including preparing Forms 990. She is not an officer of

petitioner but serves as Dr. King’s assistant. Since being injured in a 1993 car

accident, Mrs. King has suffered a variety of medical problems, including

fibromyalgia, which causes her lack of concentration, fatigue, and forgetfulness.

      For each year from 1996 through 2008 petitioner failed to file its Form 990 on

time. Dr. King knew that petitioner’s returns, going back to at least 1999, were not

timely filed and that it was his responsibility to ensure that they were. For every

year from 1996 through 2008, except 1999, respondent assessed late-filing

penalties against petitioner but, for reasons unexplained in the record, abated those

penalties for each year except 2005 and 2007.

      More particularly, on September 5, 2008, petitioner filed untimely Forms

990 for tax years 2005 and 2007. Respondent assessed late-filing penalties of

$10,000 for 2005 and $2,260 for 2007. On July 13, 2009, respondent issued

petitioner a Letter 1058, Final Notice of Intent to Levy and Notice of Your Right
                                          -4-

to a Hearing, for these unpaid liabilities for 2005 and 2007. By letter dated July 24,

2009, Dr. King requested that respondent abate these penalties because the

“volunteer” who provided petitioner’s administrative services had been very ill and

had overlooked filing the Forms 990. On August 10, 2009, petitioner mailed

respondent a Form 12153, Request for a Collection Due Process or Equivalent

Hearing, requesting a collection alternative and abatement of the penalties.

      On March 25, 2010, respondent’s settlement officer (SO) sent petitioner a

letter scheduling a telephone conference for April 15, 2010, and requesting that

petitioner submit a collection information statement, including financial information,

if a collection alternative was sought. On April 15, 2010, the SO called Dr. King

but was unable to reach him. That same day, the SO sent petitioner another letter,

extending the date for submitting information to April 29, 2010. On April 22, 2010,

Dr. King and the SO held a telephone conference. Dr. King stated that he did not

recall requesting a collection due process hearing and that he had received a letter

from the Internal Revenue Service indicating that petitioner had no outstanding

liabilities. The SO requested that Dr. King provide a copy of this correspondence

and any other relevant information by April 29, 2010. On April 26, 2010, petitioner

sent the SO a letter stating that late-filing penalties had been abated for tax years

other than those at issue. The letter requested assistance in locating documents
                                          -5-

showing that the penalties had been abated for tax years 2005 and 2007. Petitioner

did not submit an offer-in-compromise or a collection information statement to the

SO.

      On May 25, 2010, respondent issued petitioner a Notice of Determination

Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice),

sustaining the proposed levy. The notice stated the SO had verified that all legal

and procedural requirements had been met for the assessment of the 2005 and 2007

late-filing penalties. The notice indicated that petitioner had not established

reasonable cause for the late filings because its responsibility for meeting its tax

obligations could not be delegated to a volunteer. The notice also stated that

petitioner had offered no collection alternative. Finally, the notice concluded that

the proposed levy balanced the efficient collection of taxes with the taxpayer’s

legitimate concern that any collection action be no more intrusive than necessary.

                                       OPINION

       This Court has jurisdiction over this matter pursuant to section 6330(d)(1).3




      3
        Effective for determinations made after October 16, 2006, this Court has
jurisdiction to review an appeal from a determination by an Appeals officer under
sec. 6330 without regard to the type of underlying tax involved. See Callahan v.
Commissioner, 130 T.C. 44, 48 & n.4 (2008).
                                          -6-

      Respondent does not dispute that petitioner is entitled to challenge its

underlying liability in this collection proceeding. See sec. 6330(c). We review

petitioner’s underlying liability de novo. See Lunsford v. Commissioner, 117 T.C.

183, 185 (2001); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000); Lindberg

v. Commissioner, T.C. Memo. 2010-67 (underlying liability subject to challenge can

be a penalty). Other issues we review for abuse of discretion. See Sego v.

Commissioner, 114 T.C. 604, 609-610 (2000).

      With exceptions not relevant here, every organization that is exempt from

taxation under section 501(a) must file “an annual return, stating specifically the

items of gross income, receipts and disbursements, and such other information

* * * as the Secretary may by forms or regulations prescribe”. Sec. 6033(a)(1).

Section 6652(c)(1) imposes a penalty on any organization that fails to comply with

this filing requirement or fails to include complete or correct information on the

return. For organizations with gross receipts not exceeding $1 million, the penalty is

$20 for each day late with a maximum penalty of the lesser of $10,000 or 5% of the

organization’s gross receipts for the year. Sec. 6652(c)(1)(A)(ii). The penalty does

not apply if it is shown that the failure giving rise to the penalty is due to reasonable

cause. Sec. 6652(c)(4).
                                          -7-

      Petitioner does not dispute respondent’s computation of the penalty. Rather,

petitioner argues that the reasonable cause exception applies because of Mrs. King’s

illness and because imposing the penalties will cause financial challenges for it. To

avoid the penalty petitioner must establish that its failure to file the information

return within the prescribed time was due to reasonable cause and not willful

neglect. See sec. 301.6652-1(f), Proced. & Admin. Regs.; see also Rule 142(a);

Hoefle v. Commissioner, 114 F.2d 713, 715 (6th Cir. 1940). Willful neglect is “a

conscious, intentional failure or reckless indifference.” United States v. Boyle, 469

U.S. 241, 245 (1985).4 Whether the elements that constitute reasonable cause exist

in a given case is a question of fact. Id. at 249 n.8. Reasonable cause is generally

found when a taxpayer exercises ordinary business care and prudence but

nevertheless is unable to file within the prescribed time. Id. at 246; sec. 301.6651-

1(c)(1), Proced. & Admin. Regs.

      Reliance on an agent does not constitute reasonable cause for failure to timely

file. See Boyle, 469 U.S. at 252; Alton OB-Gyn, Ltd. v. United States, 789 F.2d

515, 516 (7th Cir. 1986).



      4
       Although United States v. Boyle, 469 U.S. 241 (1985), involved the
delinquent filing of an estate tax return, its principles apply to the instant case. See
Alton OB-Gyn, Ltd. v. United States, 789 F.2d 515 (7th Cir. 1986).
                                           -8-

       Petitioner has not established that its failure to timely file in 2005 and 2007

was due to reasonable cause and not willful neglect. For many years before and at

least one year after those at issue, petitioner failed to file timely returns as required.

Both Dr. and Mrs. King testified that it was petitioner’s practice to file the required

returns only after being notified that they were late. We believe petitioner’s failure

to take corrective action after so many years of late filing constitutes reckless

indifference and thus willful neglect.

       Petitioner’s argument that Mrs. King’s illness constitutes reasonable cause for

its failure to timely file its returns is unpersuasive. Mrs. King testified that she has

had medical problems since 1993 but that she was able to drive, travel, and

otherwise perform daily tasks during the years at issue. More fundamentally, Mrs.

King was not an officer of petitioner. As he was petitioner’s president, it was Dr.

King’s responsibility, not Mrs. King’s, to file the required forms. Dr. King is a very

sophisticated and intelligent professional who suffered from no incapacity during the

years at issue. He knew that he was responsible for filing the forms and that

petitioner consistently filed them late. His expectation that Mrs. King would file the

required returns does not relieve petitioner of its duty to comply with the statute.

See Boyle, 469 U.S. at 250.
                                         -9-

      Petitioner contends that it will suffer financial problems from the imposition

of the penalties. Petitioner failed, however, to provide requested information to the

SO as might have been relevant in evaluating its financial condition or in

considering any collection alternative. See Schwersensky v. Commissioner, T.C.

Memo. 2006-178. Indeed, petitioner never proposed any collection alternative. The

SO did not abuse her discretion in failing to consider collection alternatives that

petitioner never proposed. See Cox v. Commissioner, 126 T.C. 237, 260 (2006),

rev’d on other grounds, 514 F.3d 1119 (10th Cir. 2008); Vines v. Commissioner,

T.C. Memo. 2009-267, aff’d, 418 Fed. Appx. 900 (11th Cir. 2011); Johnson v.

Commissioner, T.C. Memo. 2004-73.

      Petitioner has made no valid challenge to the appropriateness of the proposed

levy. In any event, from our review of the record we are satisfied that

respondent has met the requirements of section 6330. Consequently, we shall

sustain respondent’s determination to proceed with the proposed levy.

      To reflect the foregoing,


                                                             Decision will be entered

                                                      for respondent.
