Tax Court Holds Payroll Tax Recovery Penalty Collection Action is Time Barred
In Reinhart v. Commissioner of Internal Revenue, a woman provided bookkeeping consulting services to a number of clients. In July 1993, the Internal Revenue Service (“IRS”) assessed a 1992 trust fund recovery penalty against the woman as a result of her role as a signatory on one of her client’s bank accounts. Less than two weeks later, the IRS filed a notice of lien against the woman in Volusia County, Florida. The notice stated it would “constitute a certificate of the release of lien” under Section 6325(a) of the Internal Revenue Code (“IRC”) unless it was refiled by August 14, 2002. During the intervening years, the woman and her spouse moved several times. Over the years, the woman lived in multiple Florida counties and maintained a rental property in the Bahamas.
From 2002 through 2004, the woman and her spouse filed joint income tax returns using a Bahamian address. In 2006, the woman submitted a declaration to the Southern District of Florida, stating that she lived in Nassau, Bahamas, and her property in Vero Beach, Florida was never intended to be her residence. Despite this, the woman maintained the Florida residence and held a Florida driver’s license. She also maintained both automobile and health insurance in the state. In addition to owning a Sebastian, Florida mailbox since 1999, the woman stored a recreational vehicle in Florida on a continuing basis between 2006 and 2011.
In December 2010, the IRS filed a “Revocation of Certificate of Release of Federal Tax Lien” related to the 1992 payroll tax recovery penalty in Volusia County, Florida. About two months later, the IRS mailed a copy of the notice to the woman but failed to record it in the county of her last known address. The following month, the Agency mailed a second notice to the appropriate county.
In April 2011, the woman submitted a timely request for a collection due process hearing. Prior to the hearing, the woman discussed the case with an Agency settlement officer, who called her on a Florida-based cellular telephone six times. After examining the woman’s travel documentation, the officer held a telephone hearing with the woman. Ultimately, the IRS issued a decision letter sustaining its notice of a federal tax lien. In response, the woman filed a cause of action with the Tax Court.
According to the woman, the IRS was barred from collecting the 1992 trust fund recovery penalty because the 10-year statute of limitations expired in 2003. The Tax Court stated, once such an affirmative defense is successfully pleaded, the burden shifts to the IRS to show that an exception applies. Next, the court said the notice was clearly issued more than 10 years after the trust fund recovery penalty was assessed.
After that, the Tax Court addressed the Agency’s claim that the statute of limitations was suspended under Section 6503(c) of the IRC. The court stated Section 6503(c) suspends the statute of limitations for any period a taxpayer is continuously outside the U.S. for at least six months. After reviewing the evidence provided, the Tax Court said the record did not support the Agency’s claim that the woman made only casual and temporary visits to the U.S. In fact, the evidence demonstrated that the woman was never outside the country for more than six months at a time. Since the woman provided credible evidence that she did not have a permanent residence outside of the U.S., the Tax Court held that the Agency’s tax lien was barred by the applicable 10-year statute of limitations.
If you have questions about your payroll or other tax obligations, you should speak with a knowledgeable tax attorney. Certified tax law specialist William Hartsock has more than three decades of experience advising clients in Southern California about how to comply with the Internal Revenue Code. To discuss your tax situation with a veteran international tax lawyer, give Mr. Hartsock a call today at (858) 481-4844 or contact him through his website.
Reinhart v. Commissioner of Internal Revenue, 2014 TC Memo 218 – Tax Court 2014
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