Opinion
304-23L
10-23-2023
PETER ROSSELLI & BERNADETTE V. ROSSELLI, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Emin Toro, Judge.
Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is hereby
ORDERED that the Clerk of the Court shall transmit to petitioners and respondent a copy of the pages of the transcript of the trial in the above-referenced case, held before Judge Emin Toro October 12, 2023, containing the Court's Oral Findings of Fact and Opinion, rendered at the trial session at which this case was heard.
In accordance with the Oral Findings of Fact and Opinion, an appropriate order will be issued.
THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. The oral findings of fact and opinion are made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152. Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, in effect at all relevant times.
This is a collection due process (CDP) case in which petitioners, Peter and Bernadette V. Rosselli, challenge a Notice of Determination issued by the IRS Independent Office of Appeals (IRS Appeals) on January 4, 2023. The Notice of Determination sustained a Notice of Intent to Levy with respect to the Rossellis' 2018 tax year.
The Rossellis have conceded that the Commissioner's rejection of an installment agreement they proposed to IRS Appeals was not an abuse of discretion. In view of that concession, two issues remain for our decision: (1) whether the Rossellis have shown they should not be held liable for an addition to tax under section 6651(a)(1) for failure to file a timely tax return for 2018 because they had reasonable cause for that failure, and (2) whether the Rossellis have shown they should not be held liable for an addition to tax under section 6651(a)(2) for failure to timely pay the amount of tax shown on the return for 2018 because they had reasonable cause for that failure. We conclude that the Rossellis have not made the requisite showing.
We held trial of this case in person on October 11, 2023, during the Court's San Francisco, California, trial session. Sandeep Singh represented the Rossellis; Allison Case and Patsy Clarke represented the Commissioner.
On the evidence before us, and using the burden-of-proof principles explained below, the Court finds the following facts:
FINDINGS OF FACT
Some facts have been stipulated and are so found. The parties' Stipulation as to the Administrative Record, First Stipulation of Facts and First Supplemental First Stipulation of Facts, along with their Exhibits, are incorporated by this reference.
The Rossellis
Mr. Rosselli is a licensed housing appraiser. To maintain his license, he undertakes continuing education on appraisal-related topics, including the application of the Uniform Standards of Professional Appraisal Practice. Although Mr. Rosselli did not attend college, through his appraisal work, he has come to know people in the financial industry who have significant resources.
Mrs. Rosselli is principally a homemaker and mother. She takes care of the Rosselli's five children, three of whom have special needs. She also works for a company the Rossellis own together.
At the time they filed the petition in this case, the Rossellis lived in California.
2018 Earnings from Bay Wide Investment, Inc.
For 2018, both Mr. and Mrs. Rosselli received wages from Bay Wide Investment, Inc. (Bay Wide), a closely held corporation the Rossellis own. Mr. Rosselli received $19,600 in wages, while Mrs. Roselli received $8,820. Thus, together, they received $28,420 in wages from Bay Wide. Bay Wide issued to each of the Rossellis a separate Form W-2, Wage and Tax Statement, for 2018.
Mr. Rosselli's Involvement with DC Solar
Through his appraisal business, Mr. Rosselli came to know Jeff Carpoff, founder of a solar energy company known as DC Solar. Before 2017, Mr. Rosselli learned that Mr. Carpoff was seeking additional funding for DC Solar. Mr. Rosselli introduced Mr. Carpoff to one of his contacts, who invested approximately $250 million in DC Solar. In part as a result of this introduction, Mr. Rosselli became a managing member of DC Solar, through his company Halo Management Services, LLC (Halo Management). Although Mr. Rosselli did not invest any money in DC Solar, he came to earn substantial income from it and its related entities.
In 2017, DC Solar and related entities deposited approximately $300,000 into the Rossellis' bank accounts through Halo Management. In 2018, DC Solar and related entities deposited approximately $414,000 into the Rossellis' bank accounts, again through Halo Management.
In September 2018, Robert Karmann, the then-chief financial officer of DC Solar, emailed Mr. Roselli four Schedules K-l (Form 1065), Partner's Share of Income, Deductions, Credits, etc. The Schedules K-l showed Halo Management as a partner in four DC Solar-related entities for certain tax periods ending in 2017. The Schedules K-l reported that Halo Management had incurred losses of nearly $3.5 million. Mr. Rosselli forwarded the Schedules K-l to his tax return preparer, Robert Garrett, in September 2018.
In late 2018, the Federal Bureau of Investigations (FBI) raided DC Solar's offices in connection with a criminal investigation into whether Mr. Carpoff and his wife were operating a Ponzi scheme through DC Solar. During the raid, the FBI seized DC Solar's documents and records as well as Mr. Rosselli's work laptop. Mr. Rosselli did not receive any Schedules K-l relating to DC Solar's activities for 2018.
The Carpoffs were eventually indicted and pleaded guilty to federal crimes in connection with activities at DC Solar. Eventually so did Mr. Karmann.
The Rossellis' Relationship with Mr. Garrett
The Rossellis were introduced to Mr. Garrett in late 2016 or early 2017. Mr. Garrett was a partner in an accounting firm and by then had been an enrolled agent for more than 20 years and a certified public accountant (CPA) for nearly 15 years. The Rossellis were looking for a new tax return preparer because they had encountered significant issues with their previous, long-time preparer, who was a lawyer and whose firm also provided bookkeeping services to the Rossellis and their businesses.
The reporting reflected in the Schedules K-l for the DC Solar entities' 2017 activities did not make sense to Mr. Garrett. He had questions about the magnitude of the losses and tax credits reflected in those returns. In his view, the Schedules K-l "did not smell right," and he advised the Rossellis to seek legal advice.
The Rossellis' 2018 Tax Return
The Rossellis were required to file their federal income tax return for 2018 by April 15, 2019. They timely filed a Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, extending the deadline to file their return to October 15, 2019. The Rossellis did not file their 2018 return by October 15, 2019.
The Rossellis were required to pay their federal income tax for 2018 by April 15, 2019. They did not do so.
In early 2021, an IRS Revenue Agent ran a compliance check on the Rossellis' income tax return for 2018 as part of an examination of DC Solar. Based on the compliance check, the Revenue Agent determined that the Rossellis had not filed a return for 2018. After IRS communications with the Rossellis' counsel, the Rossellis filed their 2018 return on January 31, 2022, more than two years after its extended due date.
On that return, the Rossellis reported the $28,420 wages from Bay Wide on line 1, taxable interest of $149 on line 2, and an amount from line 22 of the Rossellis' Schedule 1, Additional Income and Adjustments to Income, of $411,779. In relevant part, this last amount reflected gross receipts of $414,779 in connection with Halo Management shown on a Schedule C, Profit or Loss From Business.
Also on the return, the Rossellis reported total tax of $101,577, which the IRS subsequently assessed. The IRS also assessed additions to tax for failure to timely file a return under section 6651(a)(1) and failure to pay tax shown on the return under section 6651(a)(2). Besides $2,252 of withholding shown on the Form W-2 for Mr. Rosselli and a $2,000 payment the Rossellis submitted with their Form 4868, the Rossellis did not pay any of the tax due for 2018 by April 15, 2019, the unextended due date for their 2018 return. That tax remains unpaid.
Mr. Garrett did not advise the Rossellis that they lacked an obligation to file a federal income tax return for 2018. Mr. Garrett also did not advise the Rossellis that the date for filing their 2018 return was extended beyond October 15, 2019. Mr. Garrett took it as a given that the Rossellis would have to file a return, but did not recall at trial if he told the Rossellis that. The Rossellis did not ask Mr. Garrett if they might have an opportunity to pay any taxes that were due through an installment plan. As of April 15, 2019, and October 15, 2019, Mr. Garrett did not believe the Rossellis would have any tax due for 2018, but Mr. Garrett was not aware of the deposits the DC Solar entities had made into the Rossellis' bank accounts during 2018 and did not receive bank statements for those accounts.
As of April 15, 2019, Mr. Rosselli knew that federal income tax returns are generally due on April 15 of each year and that any tax shown on those returns would need to be paid by the same date.
IRS Efforts to Collect the Rossellis' Liabilities
On August 26, 2022, the IRS issued the Rossellis a Notice of Intent to Levy and Notice of Your Rights to a Hearing with respect to the 2018 tax year liabilities. After receiving the Notice, the Rossellis timely requested a CDP hearing by filing Form 12153, Request for Collection Due Process or Equivalent Hearing, with the IRS. As relevant to our discussion, the Rossellis requested abatement of the additions to tax the IRS had assessed and an installment agreement (which, as we have already said, is no longer at issue and will not be discussed further).
The Rossellis' CDP hearing request was assigned to an IRS Appeals Settlement Officer. After an initial review, the Settlement Officer determined that the IRS "met all legal and administrative requirements for the proposed levy."
The Settlement Officer then scheduled a conference call with the Rossellis' lawyer. At the conference call, which took place on December 1, 2022, the parties discussed the request to abate the additions to tax. In the Summary and Recommendation accompanying the Notice of Determination eventually issued by IRS Appeals, the Settlement Officer summarized the relevant discussion as follows:
During the conference Mr. Singh[, the Rossellis' lawyer,] explained that you had been employed by DC Solar. DC Solar was later determined to be a Billion Dollar Ponzi Scheme. Mr. Singh explained that you did not file your tax returns because you did not have the documents to file your returns. The FBI had raided and seized the contents of DC Solar and therefore there were no wage or income documents provided to you to file your own return. He also explained that you were told that the company was experiencing large losses that would ¶ow through to your K-l income/loss and you would not owe tax.
The Settlement Officer also summarized the content of the conference call in her Case Activity Record. There, in addition to including a summary similar to the one provided in the Summary and Recommendation document, she made the following notation: "Under the advi[c]e of another [Power of Attorney], [the taxpayer] was told not to file returns until actual income docs are issued by [DC] Solar."
In connection with the proceedings before IRS Appeals, Mr. Rosselli submitted a declaration under penalties of perjury, in which he asserted as follows:
Mr. Carpoff informed me that I was to receive Schedule K-ls showing large ordinary losses for 2018 from DC Solar, and that as a result I will not have a tax liability for that year. However, before the K-ls could be issued for 2018, DC Solar's offices were raided by the FBI. Jeff Carpoff (along with his wife) were [sic] indicted on federal criminal charges stemming from their dealings with DC Solar and other entities. They were both convicted and sentenced to long prison terms. All of DC Solar's documents and records were seized by federal authorities in the ensuing investigation. As a result, I was unable to determine my tax implications because I did not receive a K-l or any other tax reporting information from DC Solar.
On January 4, 2023, the Settlement Officer issued the Rossellis the Notice of Determination upon which this case is based. In the Notice of Determination, the Settlement Officer sustained the proposed levy action, denied the Rossellis' request to abate the additions to tax, determined that "the requirements of any applicable law or administrative procedure were met," and "balanced the proposed Collection action with the legitimate concerns that such action be no more intrusive than necessary as required by section 6330(c)(3)."
The Rossellis timely petitioned our Court for review.
OPINION
I. CDP Issues
Section 6331 authorizes the IRS to levy on (that is, to seize) property or property rights of any person who is liable for any tax and has failed to pay that tax after proper notice and demand. I.R.C. §§ 6331, 7701(a) (11) (B), (12) (A) (i); see also Rainey v. Commissioner, 156 T.C. 1, 2-3 (2021) . Because the power to levy is a strong remedy for collecting unpaid tax, section 6330 gives a taxpayer the right to a hearing with IRS Appeals and generally bars the IRS from making a levy unless the IRS notifies the taxpayer in writing of the right to a hearing before the levy is made. I.R.C. § 6330(a) and (b); Ramey, 156 T.C. at 2.
At the CDP hearing, IRS Appeals must verify that the requirements of any applicable law or administrative procedure have been met. I.R.C. § 6330(c)(1). Additionally, IRS Appeals generally must consider any issues raised by the taxpayer. I.R.C. § 6330(c)(3)(B). In certain circumstances, this includes challenges to the taxpayer's underlying liability for the year at issue. I.R.C. § 6330(c) (2) (A) (iii) and (B) . Finally, IRS Appeals must consider "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person [involved] that any collection action be no more intrusive than necessary." I.R.C. § 6330(c)(3)(C).
The taxpayer may challenge the underlying liability at the CDP hearing if the taxpayer did not receive a statutory notice of deficiency or otherwise has not had an opportunity to dispute the tax liability. I.R.C. § 6330(c)(2)(B). The parties do not dispute that the Rossellis were allowed to raise their underlying liability at the CDP hearing and that they did so with respect to their liability for additions to tax under sections 6651(a)(1) and (a)(2).
II. Standard and Scope of Review
Section 6330(d)(1) does not prescribe the standard of review that this Court should apply in reviewing an IRS administrative determination in a CDP case. The framework for that review is set out in our cases.
When (as here) the validity of the underlying tax liability is properly at issue in a CDP proceeding, the Court will review the matter de novo. Giamelli v. Commissioner, 129 T.C. 107, 111 (2007); Davis v. Commissioner, 115 T.C. 35, 39 (2000) . The parties here agree that the de novo standard applies with respect to the additions to tax the Commissioner assessed. The scope of review as to the existence or amount of an underlying liability is also de novo. See Jordan v. Commissioner, 134 T.C. 1, 8-9 (2010), supplemented by T.C. Memo. 2011-243; see also Zaimes v. Commissioner, T.C. Memo. 2023-121, at *7 (citing Kim v. United States, 121 F.3d 1269, 1272 (9th Cir. 1997)).
Issues other than a taxpayer's underlying liability are reviewed for abuse of discretion. Loveland v. Commissioner, 151 T.C. 78, 84 (2018); Giamelli, 129 T.C. at 111. That is, we do not substitute our own judgment for that of IRS Appeals and do not decide de novo whether we would have reached the same determination as IRS Appeals. Rather, we decide whether IRS Appeals' determination was arbitrary, capricious, or without sound basis in fact or law. Giamelli, 129 T.C. at 111. An appeal in this case would ordinarily lie in the U.S. Court of Appeals for the Ninth Circuit. See I.R.C. § 7482(b)(1)(A). That court has held that, in a CDP case, our review of issues that are subject to an abuse of discretion standard is confined to the administrative record. See Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009).
III. The Rossellis' Liability for Additions to Tax
A. Legal Background
The Commissioner determined that the Rossellis are liable for additions to tax under section 6651(a)(1) and (a)(2). Section 7491(c) places on the Commissioner the burden of producing sufficient evidence to show that it is appropriate to impose each addition to tax. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001) (holding that the Commissioner bears the initial burden of production for additions to tax under section 6651). Once the Commissioner meets this burden, the burden of proof is on the Rossellis to show that it is inappropriate to impose the additions to tax.
Section 6651(a)(1) provides for an addition to tax for failure to file a timely return unless the taxpayer proves that such failure is due to reasonable cause and is not due to willful neglect. See United States v. Boyle, 469 U.S. 241, 245 (1985); Wheeler v. Commissioner, 127 T.C. 200, 207 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008) . Similarly, section 6651(a) (2) provides for an addition to tax for failure to timely pay the amount of tax shown on a return, unless the failure to pay is due to reasonable cause and not due to willful neglect. The failure to timely file a tax return or to timely pay the tax shown on a return is considered due to reasonable cause where a taxpayer is unable to file the return or pay the tax within the prescribed time despite exercising "ordinary business care and prudence.'" See Jackson v. Commissioner, 86 T.C. 492, 538 (1986) (quoting Treas. Reg. § 301.6651-1(c) (1)), aff'd, 864 F.2d 1521 (10th Cir. 1989); Downing v. Commissioner, 118 T.C. 22, 28 (2002) (same); accord Paschall v. Commissioner, 137 T.C. 8, 21 (2011). In the case of a failure to timely pay, a taxpayer also has reasonable cause if the taxpayer would suffer an "undue hardship" from paying the tax on its due date. See Treas. Reg. §301.6651-l(c)(1). "[W]illful neglect" is defined as "a conscious, intentional failure or reckless indifference." Boyle, 469 U.S. at 245. Whether the elements that constitute reasonable cause or willful neglect are present in any given situation is a question of fact. See Crocker v. Commissioner, 92 T.C. 899, 913 (1989) (citing Boyle, 469 U.S. at 249, n.8; Coates v. Commissioner, 234 F.2d 459, 462 (8th Cir. 1956)).
B. Application to the Rossellis
1. The Commissioner's Burden
Because the Rossellis obtained an extension, their federal income tax return for 2018 was due on or before October 15, 2019. See I.R.C. §§ 6012(a); 6072; 6081. The Commissioner introduced evidence showing that the Rossellis did not file that return until January 31, 2022. The Commissioner also introduced evidence showing that, except for $2,252 of withholding and the $2,000 paid with their request for an extension on April 15, 2019, the Rossellis have not paid the amount shown as due on the return. The Commissioner has therefore met his initial burden of production, and the burden of proof is on the Rossellis to show that it is inappropriate to impose the additions to tax.
2. The Rossellis' Arguments
The Rossellis take the view that the additions to tax should not be imposed because their failure to timely file a return and pay their taxes for 2018 was due to reasonable cause and not due to willful neglect. Their arguments in support of this position are imprecise and appear to have changed over the course of the CDP proceedings. But at trial they centered on three themes: first, that the Rossellis reasonably assumed they were not required to file a tax return or pay tax for 2018 because they thought that losses from DC Solar would offset all their income for the year; second, that the Rossellis reasonably relied on advice they received from their accountant and others; and, third, that with respect to the failure to timely pay, the Rossellis would suffer an "undue hardship" from paying the tax on its due date. We will take these arguments in turn in a moment.
But, before proceeding with our technical analysis, we pause for some overall observations. We find it difficult to credit some aspects of the Rossellis' position. In particular, Mr. Rosselli testified that the Rossellis did not think they needed to timely file a return for 2018 because Mr. Rosselli was expecting, but had not yet received, Schedules K-l from DC Solar, which he believed would report significant losses. But the Rossellis' CPA, Mr. Garrett, testified that he had reservations about the 2017 Schedules K-l, which Mr. Rosselli received well before the time for filing the 2018 return and which reported losses similar to those purportedly promised for 2018. Mr. Garrett testified that those Schedules K-l "did not smell right" and advised the Rossellis that he needed further information about them in order to prepare their 2017 return. Additionally, before the extended return filing deadline for 2018 (indeed, well before the unextended due date for that return), the Rossellis knew that DC Solar had been raided by federal authorities and had its records seized. Given these circumstances, we question whether the Rossellis could have reasonably believed and relied upon any information reported on Schedules K-l from DC Solar, including losses, even if those forms had been issued for 2018.
Moreover, at trial Mr. Rosselli testified that he assumed he did not have an obligation to file a return for 2018 because of the anticipated losses flowing to his return-as he put it, he was told by DC Solar personnel he would have no tax liability and, in his mind, the fact that he would have no tax liability translated into an assumption that he had no obligation to file a return. He further claimed that none of his advisers disabused him of this erroneous assumption. The Court notes, however, that this position is different in a legally relevant way from what Mr. Rosselli stated in his declaration submitted to IRS Appeals and from the arguments Mr. Rosselli's lawyer advanced in his December 1, 2022, conference with the Settlement Officer.
Mr. Rosselli's declaration lacked any claim that he assumed he had no filing obligation. Instead, Mr. Rosselli stated he had been told he would not have a tax liability for 2018 and that, as a result of the government's seizure of DC Solar's records, he "was unable to determine [his] tax implications because [he] did not receive a K-l or any other tax reporting information from DC Solar." Put yet another way, Mr. Rosselli claimed he lacked information, not that he believed (or was told for that matter) that the Rossellis had no filing obligation. Indeed, even at trial, Mr. Rosselli avoided saying he was told the Rossellis had no filing obligation. He just insisted that he assumed it was so based on what he had heard from others, that no one affirmatively told him to file, and that if he had been told to file the Rossellis would have followed the advice. But, according to Mr. Rosselli, his advisers were uncertain on what should be done given the missing information.
The arguments made on Mr. Rosselli's behalf at the December 1, 2022, conference call with the Settlement Officer have the same flavor. There is no assertion that Mr. Rosselli was told that the Rossellis had no filing obligation or that he would never have to file a return for 2018. Rather, the argument appears to have been that the Rossellis' failure to file should be overlooked because Mr. Rosselli lacked the relevant information and was told to wait to file until the information became available.
In any event, even if we were to look past the Rossellis' evolving positions, and even if we were to focus exclusively on the views Mr. Rosselli expressed at trial, the Rossellis still would not prevail, for the reasons we now describe.
a. The Rossellis' Assumption
Take first the claim that the Rossellis assumed, based on their anticipated losses, that they were not required to file a return for 2018. Even if that were so, that assumption was unreasonable. Indeed, a cursory review of basic IRS guidance would have contradicted the assumption. For example, the IRS Instructions for Form 1040 for 2018 stated in no uncertain terms that married taxpayers who were under the age of 65 and filing jointly were required to file a return if their gross income was at least $24,000. The Rossellis acknowledge receiving $28,420 of wage income in 2018, which on its own was sufficient to trigger the filing requirement. Moreover, regarding the additional $414,000 of income from DC Solar and the anticipated losses, the IRS Instructions for Form 1040 for 2018 specified as follows:
Gross income means all income you received in the form of money, goods, property, and services that isn't exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it).... Gross income includes gains, but not losses, reported on Form 8949 or Schedule D. Gross income from a business means, for example, the amount on Schedule C, line 7, or Schedule F, line 9. But, in figuring gross income, don't reduce your income by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9.
Per these explicit instructions, when determining whether or not they were required to file for 2018, the Rossellis were required to include in gross income the $414,000 from DC Solar and, in making their filing determination, to disregard any losses. Their income thus exceeded the threshold for filing regardless of any losses they expected to receive. Any assumption they might have made to the contrary was unreasonable. See N.Y. State Ass'n of Real Est. Bds. Grp. Ins. Fund v. Commissioner (N.Y. State Association), 54 T.C. 1325, 1336 (1970) ("[A] taxpayer's belief that no return is required is not reasonable cause for failure to file returns where the regulations clearly state that a return should be filed."); cf. Knappe v. United States, 713 F.3d 1164, 1173 (9th Cir. 2013) (late filing was not due to reasonable cause when the IRS's filing instructions were unambiguous and the deadline was not debatable); Ghadiri v. Commissioner, T.C. Memo. 1996-528, slip. op. at 15-16 (it would not have been reasonable for the taxpayers to believe "that they did not have an obligation to file a tax return when their stores earned hundreds of thousands of dollars a year").
The Rossellis attempt to analogize their case to Rogers v. Commissioner, T.C. Memo. 2016-152. In that case, we held that a taxpayer had reasonable cause for failing to file her return and pay the taxes due when her apartment was damaged by two fires and she was unsure about the correct year to claim the resulting casualty loss. Additionally, the taxpayer was harassed by people in her neighborhood, found herself living in conditions she found dehumanizing, and spent time in the hospital after fracturing her skull. And aside from the single year in which she erroneously thought that the casualty loss relieved her of her filing obligations, she had a long history of timely filing her tax returns and paying her taxes.
We have no difficulty distinguishing Rogers from the case before us. To begin with, the Rossellis are more sophisticated in financial matters, with significantly more resources, than the taxpayer in Rogers. While the Rossellis argue that neither of them completed college, Mr. Rosselli is a long-time licensed housing appraiser who has run his own business for years, has high-level contacts in the financial sector, and earned (together with Mrs. Rosselli) almost $500,000 during the year at issue. Second, the taxpayer in Rogers faced more personal hardship than the Rossellis encountered, including a serious physical injury during the year for which she failed to file. Third, the taxpayer in Rogers had a long history of tax compliance, on which our Court placed significant weight. As the parties have stipulated, the Rossellis do not have such a history. And finally, the taxpayer in Rogers did not have multiple tax advisers at her disposal. The Rossellis did have advisers, and yet, as we explain below, they failed to solicit from those advisers critical advice pertaining to their obligations.
To summarize, we find that the Rossellis' assumption that they did not need to file a return for 2018 was unreasonable. We now turn to the Rossellis' second claim: that they reasonably relied on advice they received from Mr. Garrett and others.
b. Reliance on Advisers
As the Ninth Circuit has observed: "Given the vagaries of our famously labyrinthine tax laws, one might assume that hiring a tax expert is the quintessence of 'ordinary business care and prudence.'" Knappe, 713 F.3d at 1171. But that is not always so. See id. at 1171-75; see also Freytag v. Commissioner, 89 T.C. 849, 888 (1987) (While good faith reliance on professional advice may provide a basis for reasonable cause, it is not absolute.), aff'd, 904 F.2d 1011 (5th Cir. 1990), aff'd, 501 U.S. 868 (1991).
The first problem with the Rossellis' claim of reliance on their advisers is that, according to both Mr. Rosselli and Mr. Garrett and the record more broadly, the Rossellis never seem to have actually asked their advisers whether or not they were required to file a tax return for 2018. Rather, Mr. Rosselli testified that he assumed they did not need to file and no one ever contradicted him. Consistent with this testimony, Mr. Garrett credibly testified that he never told the Rossellis not to file. Nor did he tell them that they had no obligation to file. Further, Mr. Garrett credibly testified that, if the Rossellis had asked him whether they needed to file, he would have told them that they did. And the Rossellis did not present testimony from any of their other advisers, even though Mr. Rosselli testified that his team of legal counsel included lawyers with experience in tax, civil litigation, criminal law, and bankruptcy.
We are hard-pressed to see how the Rossellis can rely on advice that they never solicited and never received. See Jackson, 86 T.C. at 538-39 (taxpayers did not have reasonable cause for their failure to file when their adviser did not actually advise them that no return needed to be filed); Skolnick v. Commissioner, T.C. Memo. 2021-139, at *64 (same); see also Boyle, 469 U.S. at 251 ("When an accountant or attorney advises a taxpayer on a matter of tax law, such as whether a liability exists, it is reasonable for the taxpayer to rely on that advice."). Indeed, our Court has long rejected the view that a tax professional's failure to give advice (i.e., the lack of advice) establishes reasonable cause. See N.Y. State Association, 54 T.C. at 1336 ("A taxpayer is not relieved from the legal obligation to file, and the additions to tax for failing to fulfill that obligation merely because it was not offered unsolicited advice."); Zaimes, T.C. Memo. 2023-121, at *25 (same).
The assumption underlying the Rossellis' position appears to be that their advisers should have requested the necessary information and provided the advice without being asked. But this proposition turns the law on its head. It was the Rossellis' responsibility-and not that of their advisers-to understand their tax obligations and meet them. See Skolnick, T.C. Memo. 2021-139, at *64 ("Taxpayers have a personal and nondelegable duty to file their tax returns on time." (citing Boyle, 469 U.S. at 249)); see also Zaimes, T.C. Memo. 2023-121, at *25 (fact that adviser had not "told [the taxpayer], recommended to [the taxpayer], or even suggested to [the taxpayer]" a certain course of conduct did not constitute reasonable cause).
Moreover, even if we assume, contrary to weight of the evidence in the record, that the Rossellis were told that they were not required to file a tax return in 2018, they would still fall short of establishing reasonable cause. In general, to establish reasonable cause based on a taxpayer's reliance on professional advice, the taxpayer must show, by a preponderance of the evidence, that (1) the adviser was a competent professional with sufficient expertise to justify reliance, (2) the taxpayer provided necessary and accurate information to the adviser, and (3) the taxpayer actually relied in good faith on the adviser's judgment. See Alt. Health Care Advocs. v. Commissioner, 151 T.C. 225, 246 (2018); Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff'd, 299 F.3d 221 (3d Cir. 2002); see also Charlotte's Office Boutique, Inc. v. Commissioner, 425 F.3d 1203, 1212 n.8 (9th Cir. 2005) (quoting the three-pronged test with approval), aff'g T.C. Memo. 2004-43 and 121 T.C. 89 (2003); Grecian Magnesite Mining, Industrial &Shipping Co. v. Commissioner, 149 T.C. 63, 93-96 (2017) (applying the three-pronged test in the context of the failure to file and failure to pay additions to tax).
Here, the Rossellis did not timely provide Mr. Garrett with necessary and accurate information. Specifically, Mr. Garrett testified that the Rossellis did not tell him about the $414,000 deposited in their bank accounts when initially discussing the 2018 return. The Rossellis might counter that Mr. Garrett never asked, but that is no defense. Again, it is the taxpayer's responsibility to provide the relevant information. See Alt. Health Care Advocs., 151 T.C. at 246.
Moreover, although Mr. Rosselli's testimony repeatedly referred to what DC Solar personnel (including a lawyer and maybe a CPA) told him about the tax implications of his arrangements with DC Solar, during closing arguments, the Rossellis specifically disclaimed any reliance on advice received from DC Solar personnel. Even if they had not done so, we would have found such reliance unavailing as the record is essentially devoid of evidence that the DC Solar personnel with whom Mr. Rosselli spoke were competent to provide relevant tax advice or were acting in an advisory capacity with respect to Mr. Rosselli.
To the extent the Rossellis argue they were following advice to wait to file their 2018 tax return (as opposed to advice that they did not need to file a 2018 tax return at all), they still cannot prevail. Such advice would be nonsubstantive advice under the Ninth Circuit's decision in Knappe, and thus the Rossellis would not be permitted to rely on it. See Knappe, 713 F.3d at 1173 (citing Boyle, 469 U.S. at 251; Baccei v. United States, 632 F.3d 1140, 1148 n.3 (9th Cir. 2011)). And our Court has repeatedly held that reliance on an attorney's advice that it was necessary to wait for complete information before filing a return does not constitute reasonable cause for a delay in filing. See, e.g., Russell v. Commissioner, T.C. Memo. 2011-81; Estate of Maltaman v. Commissioner, T.C. Memo. 1997-110. Instead, taxpayers have an obligation to file a timely return with the best available information, and to file a later amended return, if necessary. Estate of Vriniotis v. Commissioner, 19 T.C. 298, 311 (1982); see also Mileham v. Commissioner, T.C. Memo. 2017-168, at *44 ("Even assuming [the taxpayer] did not have the Schedule K-l, [the taxpayer] could have filed his return to the best of his ability and filed an amended return."). Nor does the unavailability of information needed to calculate the tax liability constitute reasonable cause for failing to file a timely return. See Crocker, 92 T.C. at 913.
This does not mean, of course, that all advice to delay filing a return is bad advice as a strategic matter. There may well be circumstances in which advisers determine that it is in a taxpayer's best interest to wait. That may have happened here. But we have long held that such strategic considerations do not establish reasonable cause. See, e.g., Jackson, 86 T.C. at 538-39 (a taxpayer did not have reasonable cause when he received erroneous advice that he would not incur additions to tax if he failed to file); Skolnick, T.C. Memo. 2021-139, at *64 (taxpayers did not have reasonable cause for their failure to file when their adviser "deferred preparation of the return because he did not think it was a priority, believing (incorrectly) that his clients had no tax liability"); Lilley v. Commissioner, T.C. Memo. 1989-602 (taxpayer did not have reasonable cause when his lawyer's advice to delay filing due to a pending criminal investigation was a tactical maneuver and not substantive advice that no return was due), aff'd, 925 F.2d 417 (3d Cir. 1991). In such circumstances, the risk of incurring additions to tax is the cost of the taxpayer's strategic decision. See Lilley, T.C. Memo. 1989-602 (concluding that taxpayers are not excused from filing a delinquent return because they fear that doing so might otherwise prejudice them).
Moreover, as the Commissioner appropriately points out, by the time the Rossellis eventually filed their 2018 return in January 2022, they used information that had been available to them since before April 2019, further strengthening the conclusion that nothing more was needed as of that point. In any event, the Commissioner also correctly notes that, if lack of information was indeed a concern, his existing procedures offered the Rossellis several options for timely filing the 2018 return while making the relevant disclosures with respect to the DC Solar activity, such as, for example, the submission of a Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), or the inclusion of supplemental statements, and the later filing of an amended return. Accordingly, insofar as the Rossellis relied on advice that they should wait for complete information before filing their 2018 return, such reliance did not constitute reasonable cause. See, e.g., Russell v. Commissioner, T.C. Memo. 2011-81.
Finally, our conclusion that reliance on advisers does not provide reasonable cause here is entirely in keeping with the Supreme Court's admonition in Boyle that taxpayers are held responsible for assumptions they make in their relationship with their advisers. As the Court put it,
Congress has placed the burden of prompt filing on the [taxpayer], not on some agent or employee of the [taxpayer]. The duty is fixed and clear; Congress intended to place upon the taxpayer an obligation to ascertain the statutory deadline and then to meet that deadline, except in a very narrow range of situations. ... To say that it was "reasonable" for the [taxpayer] to assume that the attorney would comply with the statute [or, as relevant here, would correct the taxpayer's mistaken assumption about the implication of certain losses] may resolve the matter as between them, but not with respect to the [taxpayer's] obligations under the statute. Congress has charged the [taxpayer] with an unambiguous, precisely defined duty to file ....Boyle, 469 U.S. at 249-50. We are not free to change the balance that Congress struck.
c. Undue Hardship Claim
For similar reasons to those set out above, we also conclude that the Rossellis lacked reasonable cause for their failure to timely pay the tax shown on the 2018 return. See Baccei, 632 F.3d at 1148 ("We extend these determinations of reasonable cause under § 6651(a)(1) to determinations of reasonable cause under § 6651(a)(2). There is no reason to distinguish between reasonable cause for a failure to timely file a[] . . . tax return and reasonable cause for a failure to timely pay a[] . . . tax, and we refuse to do so."); see also Russell, T.C. Memo. 2011-81, at *21-22 (noting that the same rules generally apply with respect to the additions to tax for the late payment of tax shown on a return as for additions to tax for failure to file and collecting cases). As we have discussed, at the time the Rossellis' return was due, they had no Schedules K-l reporting losses for 2018, there were significant reasons to doubt they would ever receive such schedules, and, even if the schedules had materialized, there were even more significant reasons to question their legitimacy. The Rossellis' own adviser raised questions about the Schedules K-l for 2017. Accordingly, the Rossellis' expectation of receiving similar schedules for 2018 does not establish reasonable cause with respect to the additions to tax under section 6651(a) (2) .
The Rossellis also claim they had reasonable cause for their failure to pay because they would have suffered an "undue hardship" if they had paid the tax on its due date, relying on Treasury Regulation § 301.6651-1(c)(1). This argument does not carry the day for failure of proof. The record simply does not permit us to make this finding; it contains no information about the Rossellis' assets and liabilities as of April 2019 or their ongoing obligations as of that time. Mr. Rosselli's self-serving testimony about the difficulties the Rossellis encountered when the FBI raided DC Solar offices and Mr. Rosselli's income from DC Solar dried up and the problems he faced because of his prior tax adviser (whom Mr. Garrett replaced) simply do not suffice to meet the Rossellis' burden in the context of this case.
Nor does Mr. Rosselli's testimony shed much light on the other factors discussed in the relevant regulation. As that regulation explains,
In determining whether the taxpayer was unable to pay the tax in spite of the exercise of ordinary business care and prudence in providing for payment of his tax liability, consideration will be given to all the facts and circumstances of the taxpayer's financial situation, including the amount and nature of the taxpayer's expenditures in light of the income (or other amounts) he could, at the time of such expenditures, reasonably expect to receive prior to the date prescribed for the payment of the tax. Thus, for example, a taxpayer who incurs lavish or extravagant living expenses in an amount such that the remainder of his assets and anticipated income will be insufficient to pay his tax, has not exercised ordinary business care and prudence in providing for the payment of his tax liability. Further, a taxpayer who invests funds in speculative or illiquid assets has not exercised ordinary business care and prudence in providing for the payment of his tax liability unless, at the time of the investment, the remainder of the taxpayer's assets and estimated income will be sufficient to pay his tax or it can be reasonably foreseen that the speculative or illiquid investment made by the taxpayer can be utilized (by sale or as security for a loan) to realize sufficient funds to satisfy the tax liability.
Treas. Reg. § 301.6651-1(c)(1). We simply do not know based on the record before us which way these other factors cut.
IV. Conclusion
To conclude, after de novo review, we find that the Rossellis have not shown that they should not be held liable for the additions to tax under section 6651(a)(1) and (a)(2). As a result, the Notice of Determination sustaining the proposed levy must be sustained.
To reflect the foregoing, an appropriate order will be issued. This concludes the Court's oral findings of fact and opinion in this case.
(Whereupon, at 4:04 p.m., the above-entitled matter was concluded.)