A Tax Audit Does Not Waive Filing Deadlines

Being audited cannot be used as an excuse for failing to meet deadlines for filing returns, filing a request for an extension or paying owed taxes.

This Tax Court ruling stems from a case involving a married couple that failed to meet filing deadlines and/or pay taxes on a timely basis. James Morris and Lori Egbers-Morris’ returns for the years 2015 and 2016 were prepared by Dennis Knobloch, a certified public accountant. Around 2016, the IRS began an audit of the couple’s 2013 and 2014 taxable years, which involved issues relating to the capital expenses incurred by one of James’ owned businesses. The couple requested extensions for filing their 2015 and 2016 returns but not by the deadlines for doing so. Knobloch prepared substitutes for the 2015 and 2016 tax returns for each spouse using the married filing separately status.

The couple had the burden of proving that the untimely filings and payments were due to reasonable cause. Reasonable cause may be demonstrated for failing to file a return in a timely manner if a taxpayer reasonably relies “on the advice of an independent, competent tax professional that no return was required to be filed.”

Though the Morrises claimed that Knobloch cautioned them about potentially being subject to perjury charges due to the audit, they could not prove the existence of such correspondence. Furthermore, it would not be an acceptable reason to avoid filing or paying tax on their income unrelated to the court case.

Additionally, the couple failed to meet a deadline for providing the revenue agent conducting the audit with their 2015 return by the stated 2017 deadline. “It was not reasonable for petitioners to continue to rely on Mr. Knobloch’s alleged advice when the revenue agent was telling them to file the return,” opined the tax court in its opinion.

Source: James R. Morris and Lori A. Egbers-Morris v. Commissioner of Internal Revenue, United States Tax Court, T.C. Memo. 2021-120, October 25, 2021.