Lindsay v. United States ( 2021 )

Case: 20-50994 Document: 00515932476 Page: 1 Date Filed: 07/09/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
July 9, 2021
No. 20-50994
Lyle W. Cayce
Clerk
Jeffery Allen Lindsay,
Plaintiff—Appellant,
versus
United States of America,
Defendant—Appellee.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 4:19-CV-65
Before Higginbotham, Stewart, and Wilson, Circuit Judges.
Carl E. Stewart, Circuit Judge:
Jeffery Allen Lindsay sued the Internal Revenue Service (“the IRS”)
to recover penalties that he paid for filing late tax returns and making late tax
payments for the 2012-2015 tax years. Lindsay’s suit alleged that he was
entitled to the “reasonable cause” exception to the otherwise mandatory
penalties. The district court granted the IRS’s motion to dismiss. We
AFFIRM.
Case: 20-50994 Document: 00515932476 Page: 2 Date Filed: 07/09/2021
No. 20-50994
I. FACTUAL AND PROCEDURAL HISTORY
Lindsay was incarcerated 1 from April 2013 to June 2015. In May 2013,
he executed a Universal Power of Attorney (“POA”) appointing Keith
Bertelson as his attorney in fact. According to the terms of the POA,
Bertelson had complete control of Lindsay’s bank accounts and retained full
authority to “manage [his] affairs.” While incarcerated, Lindsay directed
Bertelson to file his tax returns and pay his taxes. Although Bertelson assured
Lindsay that he was filing his returns and paying his taxes, he was actually
embezzling hundreds of thousands of dollars from him. Lindsay’s tax returns
for 2012 through 2015 were not timely filed, nor were his taxes or estimated
quarterly taxes timely paid. While still incarcerated, Lindsay discovered
Bertelson’s malfeasance and revoked the POA in April 2014. Lindsay then
sued Bertelson for embezzlement and after a jury trial in 2015, he was
awarded $705,414.61 in actual damages and $1 million in punitive damages.
Once Lindsay was released from prison, he eventually filed all
delinquent tax returns and paid the taxes owed, plus interest and $425,307.98
in penalties. In 2018, Lindsay was unsuccessful in obtaining a refund for the
penalties that he paid to the IRS. He filed suit in federal district court the
following year. In his complaint, Lindsay argued that his failure to file his tax
returns and pay his taxes was due to reasonable cause and not willful neglect.
He alleged that his incarceration qualified as a “disability” and that,
considering his unusual circumstances, penalizing him for late filing and
payments would go against equity and good conscience. He demanded a jury
trial and sought a refund of the penalties that he paid.
1
Lindsay has had multiple run-ins with the law. He was imprisoned at FCI Big
Spring from 1996-2000.
2
Case: 20-50994 Document: 00515932476 Page: 3 Date Filed: 07/09/2021
No. 20-50994
The IRS moved to dismiss under Federal Rule of Civil Procedure
12(b)(6) for failure to state a claim upon which relief can be granted and,
alternatively, for summary judgment. Relying on the Supreme Court’s
opinion in United States v. Boyle, 469 U.S. 241 (1985), the Government
argued that a taxpayer is not entitled to the reasonable cause defense for late
filings when he relies on an agent to file a timely tax return and the deadline
for filing is ascertainable by the taxpayer.
The magistrate judge issued a report and recommendation that the
Government’s motion to dismiss be denied. The district court disagreed and
issued an order rejecting the magistrate judge’s report and recommendation.
In its order, the district court explained that while it was sympathetic to
Lindsay’s specific circumstances, the “weight of authority indicates he has
failed to state a claim upon which relief can be granted.” Beginning with
Boyle, 469 U.S. at 245, the district court navigated the relevant caselaw and
concluded that Lindsay was not entitled to assert the reasonable cause
defense under I.R.C. § 6651(a)(1)–(2) or § 6654(a). Although the district
court granted the Government’s motion to dismiss, it permitted Lindsay
fourteen days to amend his complaint should he wish to do so. When Lindsay
did not file an amended complaint by the designated deadline, the district
court issued an order dismissing his suit and closing the case. This appeal
follows.
II. STANDARD OF REVIEW
“We review a district court’s grant of a motion to dismiss de novo,
‘accepting all well-pleaded facts as true and viewing those facts in the light
most favorable to the plaintiffs.’” Anderson v. Valdez, 845 F.3d 580, 589 (5th
Cir. 2016) (quoting Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th
Cir. 2008)). To prevail on a Rule 12(b)(6) motion to dismiss, “a plaintiff’s
complaint ‘must contain sufficient factual matter, [if] accepted as true, to
3
Case: 20-50994 Document: 00515932476 Page: 4 Date Filed: 07/09/2021
No. 20-50994
‘state a claim to relief that is plausible on its face.’” Id. (quoting Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009)); see FED. R. CIV. P. 12(b)(6). “A claim has
facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. (quoting Iqbal, 556 U.S. at 678).
III. DISCUSSION
Lindsay argues that he sufficiently pled reasonable cause under the
Internal Revenue Code. We disagree.
A. Reasonable Cause under I.R.C. § 6651(a)(1)–(2)
Lindsay first argues that he was exempt from the mandatory penalties
under I.R.C. §§ 6651(a)(1) and (a)(2) because he demonstrated reasonable
cause. The district court dismissed Lindsay’s suit, citing Boyle, 469 U.S. at
245.
Section 6651(a)(1) of the Internal Revenue Code provides that failure
to timely file a return will result in a monetary penalty “unless it is shown
that such failure is due to reasonable cause and not due to willful neglect[.]”
I.R.C. § 6651(a)(1). Section 6651(a)(2) similarly provides that failure to
timely pay taxes owed will result in a monetary penalty “unless it is shown
that such failure is due to reasonable cause and not due to willful neglect[.]”
§ 6651(a)(2).
The Internal Revenue Code does not define “reasonable cause,” but
the Treasury Department’s regulations provide some clarity:
If the taxpayer exercised ordinary business care and prudence and was
nevertheless unable to file the return within the prescribed time, then
the delay is due to a reasonable cause. A failure to pay will be
considered to be due to reasonable cause to the extent that the
taxpayer has made a satisfactory showing that he exercised ordinary
business care and prudence in providing for payment of his tax liability
4
Case: 20-50994 Document: 00515932476 Page: 5 Date Filed: 07/09/2021
No. 20-50994
and was nevertheless either unable to pay the tax or would suffer an
undue hardship . . . if he paid on the due date.
26 C.F.R. § 301.6651-1(c)(1). The reasonable cause inquiry thus includes two
questions—first, whether the taxpayer used ordinary business care and
prudence, and second, whether he was nevertheless unable to pay the tax. Id.In Boyle, the Supreme Court considered whether a taxpayer could
avail himself of the reasonable cause exception to tax penalties where the
taxpayer hired a lawyer who filed the taxes three months late. 469 U.S. at
243–44. The Court stated that while “[e]ngaging an attorney to assist in the
probate proceedings is plainly an exercise of the ‘ordinary business care and
prudence’ . . . that does not provide an answer to the question [of reasonable
cause].” Id. at 250. Though taxpayers may entrust certain duties to their
agents, “Congress has placed the burden of prompt filing on the executor,
not on some agent or employee of the executor . . . . 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.” Id.at 249–50.
Lindsay claims that he exercised ordinary business care and diligence
by giving Bertelson his power of attorney and by directing Bertelson to file
his income tax returns and to pay his taxes. Lindsay routinely asked Bertelson
whether he was handling Lindsay’s tax obligations, and Bertelson said that
he was. In Lindsay’s view, he has a reasonable cause for late filings and
delayed payments because he used ordinary business care and prudence but
was nevertheless unable to file his returns and pay his income taxes due to
circumstances beyond his control, i.e., Bertelson’s malfeasance.
Lindsay’s position was rejected in Boyle. Boyle established that
taxpayers have a non-delegable duty to promptly file and pay their taxes. 469
U.S. at 249–50. Unlike cases where taxpayers seek and detrimentally rely on
5
Case: 20-50994 Document: 00515932476 Page: 6 Date Filed: 07/09/2021
No. 20-50994
tax advice from experts, “one does not have to be a tax expert to know that
tax returns have fixed filing dates and that taxes must be paid when they are
due.” Id. at 251. Lindsay’s argument fails.
Lindsay next argues his circumstances fit the IRS’s internal definition
of reasonable cause.
The Internal Revenue Service has articulated eight reasons for a late
filing that it considers to constitute “reasonable cause.” These
reasons include unavoidable postal delays, the taxpayer’s timely filing
of a return with the wrong IRS office, the taxpayer’s reliance on the
erroneous advice of an IRS officer or employee, the death or serious
illness of the taxpayer or a member of his immediate family, the
taxpayer’s unavoidable absence, destruction by casualty of the
taxpayer’s records or place of business, failure of the IRS to furnish
the taxpayer with the necessary forms in a timely fashion, and the
inability of an IRS representative to meet with the taxpayer when the
taxpayer makes a timely visit to an IRS office in an attempt to secure
information or aid in the preparation of a return. Internal Revenue
Manual (CCH) § 4350, (24) ¶ 22.2(2) (Mar. 20, 1980) (Audit
Technique Manual for Estate Tax Examiners).
Boyle, 469 U.S. at 243 n.1 (emphasis added). Lindsay points to his
incarceration as an example of an unavoidable absence, but “the mere fact
that [Lindsay] was incarcerated when his return was due is not reasonable
cause for his failure to file timely.” George v. Comm’r, T.C. Memo 2019-128,
2019 WL 4686285, at *3 (collecting cases)). “Nor is the unavailability of
records generally reasonable cause for failure to file a timely return.” Id. This
argument fails as well.
Lindsay’s final argument is that Boyle does not control in cases where
a taxpayer is not “physically and mentally capable of knowing, remembering,
and complying with a filing deadline.” 469 U.S. at 253 (Breyer, J.,
concurring). He argues that his incarceration rendered him incapable of
complying with his filing deadline, and he relies on Brown v. United States,
6
Case: 20-50994 Document: 00515932476 Page: 7 Date Filed: 07/09/2021
No. 20-50994
630 F. Supp. 57 (M.D. Tenn. 1985). In Brown, the district court concluded
that Boyle did not govern the § 6651(a)(1) analysis where an elderly man
entrusted his tax responsibilities to an attorney, the attorney became ill and
filed the return late, and the elderly man was “incapable of meeting the
criteria of ordinary business care and prudence” given his age, health, and
lack of experience. Id. at 58, 60.
Even if we read Boyle and Brown as creating an exception to the
reasonable cause rule, Lindsay was not incapable of meeting the filing and
payment deadlines. Lindsay could have used ordinary business care and
prudence to assure that his taxes were filed and paid, much like he conducted
business and employed a CPA while incarcerated. Lindsay failed to act with
such care, and we affirm the district court’s dismissal accordingly. 2
B. Reasonable Cause under I.R.C. § 6654
Section 6654(a) imposes a penalty for underpayment of estimated
quarterly taxes. Section 6654(e)(3)(B)(ii) waives the penalty where
“underpayment was due to reasonable cause and not to willful neglect.” For
the reasons discussed above, Lindsay has failed to demonstrate reasonable
cause.
IV. CONCLUSION
For the aforementioned reasons, we AFFIRM the district court.
2
Lindsay also contends that his agent’s embezzlement incapacitated him, and he
should be exempted from the reasonable cause standard under Matter of American
Biomaterials Corporation, 954 F.2d 919 (3rd Cir. 1992). That case is distinguishable because
unlike the company in American Biomaterials, Lindsay could have controlled his agent.
7