Illinois Agric. Holding Co. v. Commissioner

Memorandum Findings of Fact and Opinion

BRUCE, Judge: This proceeding involves delinquency penalties in the amount of $852.70 for petitioner's failure to file a timely corporation income tax return for the taxable year ended September 30, 1947. The sole question for decision is whether petitioner has shown "reasonable cause" for its failure to*47 file a timely return within the meaning of section 291 (a) of the Internal Revenue Code. Applicable provisions of the Internal Revenue Code are set forth in the margin. ¹ The case was submitted on a partial stipulation of facts, hereby incorporated by reference in our Findings of Fact, and oral testimony adduced at the hearing.

*48 Findings of Fact

Petitioner is an Illinois corporation with offices in Chicago. It reported its income on the accrual basis for a fiscal year ended September 30. Its income tax return for the fiscal year ended September 30, 1947 was filed with the collector of internal revenue at Chicago, Illinois on January 22, 1948 without having obtained permission from the collector of internal revenue to file said return after its due date, December 15, 1947. Attached to the return was an affidavit of petitioner's controller setting forth reasons for the late filing. Said return was also accompanied by a check for $8,580.21, representing payment in full of income taxes in the amount of $8,527.01 and interest in the amount of $53.20 for 38 days.

Petitioner is one of 17 companies affiliated with the Illinois Agricultural Association, a state farm bureau. It is the holder of all the stock of the Country Life Insurance Company, an Illinois old line legal reserve life insurance company, and is engaged in no other business. All its income for the taxable year, with the exception of $13.65 interest, consisted of dividends received from the insurance company. Headquarters for the Illinois Agricultural*49 Association and twelve of its affiliates, including petitioner, were located at 608 South Dearborn Street, Chicago, Illinois, until the latter part of June 1947, when they moved into a 12 story building at 43 East Ohio Street, Chicago, Illinois.

Petitioner's books and records were audited by a firm of certified public accountants in October*50 1947 and printed copies of the audit report, disclosing all income and disbursements for the fiscal year ended September 30, 1947, were delivered to petitioner and to its controller on October 29, 1947.

Petitioner's failure to file its income tax return for the fiscal year ended September 30, 1947, within the time allowed by section 53 (a), Internal Revenue Code, was not due to reasonable cause.

Opinion

Petitioner's income tax return for the fiscal year ended September 30, 1947, due December 15, 1947 (section 53 (a) (1), Internal Revenue Code), was filed January 22, 1948, or 38 days late. The full amount of the tax due, together with interest thereon for 38 days, was paid at the time the return was filed so that no deficiency in tax is involved. Respondent has determined, however, that reasonable cause for the delay in filing was not shown and accordingly petitioner is liable for 10 per cent penalty under section 291 (a) of the Internal Revenue Code. The correctness of the Commissioner's determination is the only question involved.

Section 291 (a) of the Internal Revenue Code imposes a*51 penalty upon the failure of a taxpayer to make and file an income tax return within the prescribed time "unless it is shown such failure is due to reasonable cause and not due to willful neglect." The Commissioner did not charge the taxpayer with "willful neglect" (see notice attached to petition) so that that question is not presented. However, both conditions - "reasonable cause" for the failure and that it was "not due to willful neglect", must be shown to have existed in order that such penalty may be avoided. Rogers Hornsby, 26 B.T.A. 591, 593; Charles E. Pearsall & Son, 29 B.T.A. 747, 749. The burden of excusing the failure is on the taxpayer. Sabatini v. Commissioner, 98 Fed. (2d) 753.

Petitioner's controller, responsible for the timely preparation and filing of its income tax return, testified that the filing of petitioner's return for the taxable year involved was "overlooked" and gave as reason the following circumstances: In the latter part of June 1947 the Illinois Agricultural Association and 12 of its affiliated companies, including petitioner, moved their headquarters from 608 South Dearborn Street to 43 East Ohio Street, Chicago, *52 Illinois. It is claimed this caused some confusion in the records of petitioner. Chapelle, petitioner's controller, was also busy preparing reports for the Illinois Agricultural Association and its affiliates for the annual meetings around November 1.

Reasonable cause has been defined to mean the exercise of ordinary business care and prudence. Southeastern Finance Company v. Commissioner, 153 Fed. (2d) 205. Girard Investment Company v. Commissioner, 122 Fed. (2d) 843. In the case of Spies v. United States, 317 U.S. 492 the Supreme Court, referring to section 291 (a) of the Internal Revenue Code, stated "Punctuality is important to the fiscal system, and these are sanctions to assure punctual as well as faithful performance of these duties." See also Plunkett v. Commissioner, 118 Fed. (2d) 644, 650, affirming 41 B.T.A. 700, where it is stated "That the failure was due to inadvertence does not relieve the petitioner from the imposition of the penalty. The penalty is not primarily punitive in nature, but is an attempt to protect the revenue." In Ned Wayburn, 32 B.T.A. 813, 818, this*53 Court pointed out that "The rendering of a proper return should be regarded by every citizen as a vital part of his life, equally with that of attention to his business." Forgetfulness has been held not to constitute "reasonable cause" for failure to file timely income tax returns. Rogers Hornsby, supra; Gus V. Winston, et al., 22 B.T.A. 1194.

Neither the moving of petitioner's offices six months before the due date of his income tax return, nor the fact that petitioner's controller was busy preparing reports for annual meetings held six weeks before the due date of the income tax return constitutes reasonable cause for petitioner's failure to file its income tax return on or before December 15, 1947. This conclusion is buttressed by the fact that petitioner and its controller were furnished audit reports containing information necessary to the preparation of its income tax return more than six weeks prior to the due date, and by the fact that petitioner's controller did prepare and timely file income tax returns for some 12 affiliated companies. In failing to file its return timely petitioner did not exercise ordinary business care and prudence. The Commissioner*54 correctly determined that petitioner did not show reasonable cause for its failure to file its income tax return for the fiscal year ended September 30, 1947 on or before December 15, 1947.

Decision will be entered for the respondent.