It is very common for taxpayers to argue that they had reasonable cause for missing various tax deadlines, often citing medical problems, financial hardship, loss of records, bad advice from accountants, and a variety of personal and family issues. In almost every instance, the FTB and OTA reject the arguments.
Thus, the Appeal of V. Hazard and M. Hazard stands out as a rare case, as the OTA granted the appeal in full, finding that the taxpayers met their burden of proving that they had reasonable cause for missing the deadline to pay their taxes for the 2021 tax year. The ruling is especially noteworthy considering that one of the taxpayers is a certified public accountant who operates a business that includes tax preparation services.
The taxpayers paid a $2,025 late-payment penalty and then sought a refund, which the FTB denied.
During the appeal, the taxpayers presented evidence that the CPA was undergoing cancer treatment, and that his safe and computer were stolen, leaving him without the documents he had prepared in anticipation of filing the 2021 return.
When the couple filed within the automatic extension period, they reported business income for 2021 that was three times the amount reported the previous year, and adjusted gross income that was approximately 180 percent higher. However, they still had a roughly $2,000 balance due, triggering the penalty and interest.
“In light of all evidence, OTA finds that the combination of appellant-husband’s efforts to compile his tax documents prior to the increased frequency of his medical treatments, the theft of appellants’ tax documents and workpapers, and his documented medical incapacity resulted in appellants’ failure to accurately estimate and timely pay their taxes, and an ordinarily intelligent and prudent businessperson would have so acted under similar circumstances,” the OTA wrote. “The record establishes that these circumstances continued consistently into the summer of 2022, at which point appellants worked diligently to recreate the stolen information and prepare the return ….”
The OTA placed a great deal of weight on the fact that the thefts were documented and had been reported to law enforcement.