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Intress v. United States

United States District Court, M.D. Tennessee, Nashville Division

August 2, 2019

KRISTIN INTRESS and PATRICK STEFFEN, individually and as husband and wife and as their marital community, Plaintiffs,



         Before the Court is Defendant the United States of America's Motion to Dismiss[1] (Doc. No. 11, “the Motion”) Plaintiffs Kristin Intress and Patrick Steffen's Complaint (Doc. No. 1). Plaintiffs responded in opposition (Doc. No. 18), and Defendant has replied (Doc. No. 25). As discussed below, the motion will be granted, and the Complaint will be dismissed with prejudice.


         Plaintiffs, Kristen Intress and Patrick Steffen, are a marital community and taxpayers of Tennessee. They seek refund of a tax penalty imposed as an addition to tax under Title 26 U.S.C. §§6651, 6601 in the amount of $120, 607.27. (Doc. No. 1 at 1 ¶4). The Internal Revenue Service (IRS) imposed and collected the penalty subsequent to the late filing of Plaintiffs' 2014 personal income tax return. (Id.)

         Plaintiffs employ[ed] a professional tax preparer to file their Married Filing Jointly United States Form 1040. (Id. at 2 ¶11, 3 ¶13). Plaintiffs were out of the country at or around the tax filing deadline for tax year 2014, and they sought an extension of time to file via their tax preparer and bookkeeper. (Id. at 3 ¶¶14-16). With the data she possessed, on or about April 15, 2015 at 7:01 p.m. the tax preparer completed the prerequisite Form 4868 for filing and queued up the document through e-file software. (Id. ¶17). The tax preparer failed to hit “send” (mistakenly believing she had), and the Form 4868 was not electronically received by the IRS on the April 15, 2015 deadline. (Id. ¶18). The tax preparer had never experienced this error before. (Id. at 5 ¶29). The filing mistake went undiscovered until October 2015. (Id. at 3 ¶19).

         The IRS assessed a $120, 607.27 penalty based on the length of the delinquency and negotiations with the tax preparer. (Id. at 4 ¶20). Plaintiffs, after exhausting all internal appeals, and while still maintaining the error was through no fault of their own, paid the penalty on November 1, 2016. (Id. ¶21-23). On March 31, 2017 Plaintiffs submitted to the IRS a Form 843 refund and abatement request, which was subsequently denied. (Id. ¶24-25). This suit followed.

         Plaintiffs contend that they meet the dual requirements for abatement of a late filing penalty under 26 U.S.C. §6651: “reasonable cause” and lack of “willful neglect, ”[3] see United States v. Boyle, 469 U.S. 241 (1985). Plaintiffs assert that their reliance on a third-party tax preparer to timely file their tax return is “reasonable cause” under 26 U.S.C. §6651. (Doc. No. 1 at 4 (Count I)). Plaintiffs additionally argue that the Supreme Court precedent holding otherwise is inapplicable to the modern IRS e-filing system, as it was decided in an era of exclusively paper tax filing. (Doc. No. 18 at 4); see also Boyle, 469 U.S. 241. Plaintiffs further maintain that they are entitled to a “first-time” abatement of the penalty, and that the IRS abused its discretion in failing to grant one. (Doc. No. 1 at 5 (Counts II & III)). Finally, Plaintiffs assert that, based on Counts I-III and the Taking Clause of the Fifth Amendment, the penalty as collected was an illegal exaction of money by the IRS. (Id. at 6 (Count IV)).


         For purposes of a motion to dismiss, the Court must, as it has above, take all of the factual allegations in the complaint as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Id. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Id. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Id. at 679. A legal conclusion, including one couched as a factual allegation, need not be accepted as true on a motion to dismiss. Id. at 678; Fritz v. Charter Township of Comstock, 592 F.3d 718, 722 (6th Cir. 2010). Moreover, factual allegations that are merely consistent with the defendant's liability do not satisfy the claimant's burden, as mere consistency does not establish plausibility of entitlement to relief, even if it supports the possibility of relief. Iqbal, 556 U.S. at 678.

         In determining whether a complaint is sufficient under the standards of Iqbal and its predecessor and complementary case, Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), it may be appropriate to “begin [the] analysis by identifying the allegations in the complaint that are not entitled to the assumption of truth.” Iqbal, 556 U.S. at 680. Identifying and setting aside such allegations is crucial because they simply do not count toward the plaintiff's goal of showing plausibility of entitlement to relief. As suggested above, such allegations include “bare assertions, ” formulaic recitation of the elements, and “conclusory” or “bald” allegations. Id. at 681. The question is whether the remaining factual allegations plausibly suggest an entitlement to relief. Id. If not, the pleading fails to meet the standard of Rule 8 and thus must be dismissed pursuant to Rule 12(b)(6). Id. at 683.


         Plaintiffs' position is at odds with Boyle. There, the Supreme Court ruled that a taxpayer's reliance on a professional third party for tax filing is not reasonable cause for abatement of late penalties should the third party fail to file timely. See 469 U.S. at 252; see also 26 U.S.C. §6651. Reasonable cause is defined as being “unable to file the return within the prescribed time” notwithstanding the taxpayer's “exercise of ordinary business care and prudence.” Id. at 246 (quoting 26 CFR § 301.6651(c)(1) (1984)). The crux of the Boyle opinion is that Congress assigned to the taxpayer the duty to file timely taxes, and that reliance on an agent to fulfill this duty is unjustified when the agent does nothing the taxpayer could not do himself. See Id. at 249, 252. The Court's intention was to create a rule with “as ‘bright' a line as can be drawn” to avoid “unnecessary ad hoc determinations.” Id. at 249. Plaintiffs assert that, with time, the “brightness” of the line drawn in 1985 has faded, and that the Internet era introduces considerations Boyle could not possibly have anticipated.

         Plaintiffs' contention that Boyle does not govern electronic tax returns[4] presents a novel legal question-one not previously addressed squarely by the federal courts. See Haynes v. United States, 760 Fed.Appx. 324, 326 (5th Cir. 2019) (identifying e-filing question as unresolved before declining to address it); Nat'l Taxpayer Advoc., Fiscal Year 2018 Ann. Rep. to Congress, Most Litigated Issues at 514 (2019) (noting Haynes leaves open possibility of e-filing exception to Boyle). While the Court ultimately agrees with Defendant's position that Boyle applies here, and thus prohibits a finding of reasonable cause in this case, that conclusion is neither axiomatic nor self-evident, and is worthy of analysis. The remainder of Plaintiffs' claims are either contingent on a finding of reasonable cause, or not entitled to judicial relief, and accordingly fail.



         Plaintiffs are correct in that IRS tax filing procedure has changed significantly since Boyle was decided in 1985. Chiefly, Plaintiffs draw attention to Revenue Procedure 2011-25, which mandates that “specified tax return preparers, ” including any paid professional planning to prepare more than 10 returns a year, must file returns through e-file software. See Rev. Proc. 2011-25, 2011-17 I.R.B. 725 (2011); (Doc. No. 18 at 2).[5] Plaintiffs argue that, because filing taxes through a tax preparer now necessarily involves use of specialized software that a taxpayer cannot employ totally independently, [6] the task that “required no special training or effort” in Boyle, 469 U.S. at 252, has become one that obligates ...

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