Dr. R was a physician whose spouse owned a small business. Her attorney advised her not to file a tax return until all the data from her husband’s business were compiled. He also advised her that it was illegal to file a return with incomplete or inaccurate information.
She found another adviser, then filed a return, but the IRS assessed penalties both for late filing and late payment. She claimed that there should be no penalties because she had reasonably relied on an attorney’s advice. The case went to court.
Held: For the IRS. Taxpayers have an obligation to file a return based on the information available to them at the time. They can amend the return later if more information is available.
Bottom line: It is not reasonable to rely on an attorney’s advice to wait to file until full and completely accurate information is available, or to file late because a refund is expected and the taxpayer has been advised there are no negative consequences for filing late when a refund will be due. [Russell v. Commissioner, T.C. Memo. 2011-81]
