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COOPER v. UNITED STATES

February 3, 1993

LARRY COOPER and SANDRA COOPER, Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant.



The opinion of the court was delivered by: JOHN C. LIFLAND

 LIFLAND, District Judge

 This matter comes before the Court on cross-motions for summary judgment by plaintiffs Sandra Cooper and Larry Cooper ("plaintiffs") and by defendant United States of America ("United States"). Plaintiffs commenced the instant action seeking a refund of late filing penalties and late payment penalties assessed by the Internal Revenue Service ("IRS") and paid by plaintiffs concerning the tax years 1982 through 1986.

 BACKGROUND

 The relevant facts are not in dispute. In 1982, plaintiff Larry Cooper became the subject of a criminal investigation by the IRS. In January of 1983, the IRS commenced an audit of the plaintiffs' 1980 tax year; the audit subsequently was expanded to include the tax years 1979 and 1981.

 In 1982, plaintiffs retained Stephen Lampf ("Lampf"), a tax attorney, to advise them during the course of the IRS audit and investigation. Because of the ongoing criminal investigation, plaintiffs were advised by Lampf not to file any additional federal income tax returns until the conclusion of the criminal investigation because of concerns relating to the Fifth Amendment to the United States Constitution.

 Lampf, a certified public accountant as well as an attorney, is a former IRS revenue agent and appeals officer who has been in private practice for twenty-one years concentrating in federal tax matters. It is undisputed that Lampf advised plaintiffs not to file any returns for the tax years in question.

 In August of 1986, the Newark District Counsel's Criminal Investigation Division recommended prosecution of plaintiff Larry Cooper for alleged violations of 26 U.S.C. § 7201; at this time, Larry Cooper was notified that the IRS was recommending the consideration of criminal charges. On April 7, 1987, a two-count indictment was returned against Larry Cooper charging him with income tax evasion under 26 U.S.C. § 7201 for underreporting his income for the tax years 1980 and 1981. Cooper subsequently pleaded guilty to one count of tax evasion and was ordered, inter alia, to pay a fine of $ 5,000.00, all taxes, penalties and interest for 1980 and 1981, and to file tax returns for 1982 through 1986.

 Following the conviction and sentencing of Larry Cooper, plaintiffs filed their joint tax returns for the tax years 1982 through 1986, and paid the taxes due. The IRS issued statutory notices of deficiency to plaintiffs between March 14, 1988 and May 23, 1988 assessing penalties for failure to file tax returns, failure to pay taxes, underestimation of tax payments due, and statutory interest relating to the 1982 through 1986 tax years.

 By letter dated June 10, 1988, plaintiffs, through Lampf, requested that the penalties be abated because plaintiffs relied at all times upon the advice of their tax attorney not to file any tax returns until the conclusion of the criminal investigation. In July, 1988, the IRS denied plaintiffs' request for an abatement, concluding that plaintiffs' failure to file returns was not the result of "reasonable cause." In September, 1988, plaintiffs paid $ 81,770.56 in penalties.

 On March 11, 1991, plaintiffs filed the instant action seeking a refund of the amounts paid as penalties. Plaintiffs argue that their failure to file tax returns and to timely pay taxes was the result of reasonable cause and not of willful neglect, entitling them to a refund of the late filing and late payment penalties assessed by the Internal Revenue Service.

 DISCUSSION

 Delinquency penalties are imposed upon taxpayers pursuant to 26 U.S.C. § 6651(a)(1) for failure to timely file income tax returns and pursuant to 26 U.S.C. § 6651(a)(2) for failure to pay the proper tax due on a return, "unless it is shown that such failure is due to reasonable cause and not due to willful neglect." 26 U.S.C. § 6651(a). The burden of establishing reasonable cause and lack of willful neglect is on the taxpayer, as the penalty is collected as an addition to the tax set forth in the Commissioner's notice of deficiency, which is presumptively correct. See Welch v. Helvering, 290 U.S. 111, 114, 78 L. Ed. 212, 54 S. Ct. 8 (1933); Sanderling v. Commissioner, 66 T.C. 743, 757 (1976).


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