Legal Blog

The Weekly Scenario: Unable to Pay Income Taxes

Question: I am a residential home builder and was hit pretty hard by the real estate market collapse in 2007 and the recession that followed. The stress caused me to have heart problems. I was unable to pay my income taxes because I was unable to borrow money to pay my taxes (like I had done in the past) based on my asset base. I plan to pay the taxes, but would like some penalty relief. Will the IRS grant me any relief based on my circumstances? Answer: The IRS position is that if a taxpayer exercises ordinary business care and prudence, but nonetheless incurs penalties, the taxpayer can be entitled to relief. In your case, the question is whether you may be able to establish reasonable cause by providing to the IRS facts and circumstances showing that you exercised ordinary care and prudence, but nevertheless was unable to comply with the law. The collapse of the real estate market and the recesssion that followed may be helpful in establishing reasonable cause. As such, the IRS might grant relief on the basis that it might be reasonable for you to pay your taxes late if you can show that had you paid on time, your business would have been forced to shut down. While your heart condition alone may not rise to the level of reasonable cause, that combined with some of the other factors, may make a stronger case. Finally, to the extent you can become compliant with your taxes within a reasonable time after the illness, it could go a long way toward abatement of any penalties.


Steve Shane Head Shot for webSteve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates. You can also connect with Offit Kurman via Facebook, Twitter, Google+, YouTube, and LinkedIn.