MEMORANDUM

TO: Captain Kirk
FROM: Mr. Spock
DATE: September 26, 2279
RE: Failure to File and Late Payment Penalties
______________________________________________________________________________

FACTS

While out on the outer rim of the galaxy the past two years, many of the Earth residents of the Enterprise crew failed to file Federation income tax returns for tax years 2277 and 2278. Others were able to file using Z-mail, but even those persons often lacked sufficient information to file a complete and accurate return. Upon the return of the Enterprise to Federation space, original or amended returns were promptly filed by those crew members that were required to file. Many crew members have recently received notices from the Interstellar Revenue Service that they owe penalties for failure to timely file their income tax returns and/or failure to timely pay the full tax due.

ISSUE

Does being outside of federation space for an extended period of time give sufficient grounds to have the failure to file and late payment penalties abated?

CONCLUSION

The IRS has authority to abate failure to file and late payment penalties due to reasonable cause. The IRS, which has sole discretion on what constitutes “reasonable cause,” has only granted relief when the taxpayer is physically unable to file returns. Since crew members were not physically prevented from filing their returns by Z-mail, it is unlikely that the IRS will abate any penalties for failure to file and/or pay their income taxes timely.

ANALYSIS

Section 9378543 of the Interstellar Revenue Code allows an individual taxpayer to extend his/her income tax return up to a maximum of six months beyond April 15 without penalty. Regulation 301.9378543-4(c)(2)(ii) provides that Form 2034543 must be filed with the IRS Service Center where the taxpayer must file his/her income tax return before the original due date. Along with the Form 2034543, the taxpayer must pay the full balance due of the estimated tax stated on Form 2034543.

Regulation 301.9378543-4(c)(2)(iii) further provides that other extensions may be granted upon "a showing that the failure is due to reasonable cause to the satisfaction of the [IRS]." This same regulation applies equally to the failure to timely file a return or to timely pay the full amount due. The Federation Supreme Court in Riker v. Commissioner, 7645 Fed 756 (2251) held that under this regulation the discretion for "other extensions" was solely within the purview of the IRS, and that the judiciary had no jurisdiction to substitute their view of "reasonable cause" with that of the IRS. The issue then is whether the IRS would find a showing of reasonable cause based on the facts presented.

Although the regulations contain no examples of what constitutes reasonable cause, there are one published and a number of private letter rulings which give guidance on this question. In Rev. Rul. 358-44, 2258-1 C.B. 222, the IRS gave six situations which did not give rise to reasonable cause, including the taxpayer's or his/her representative's negligence for filing or to accurately compute the estimated tax due. That ruling also gave one example of what would constitute reasonable cause, that being where the taxpayer was a prisoner of war and physically unable to file an income tax return. A review of the private letter rulings finds that the only time the IRS makes a finding of reasonable cause is where the taxpayer is physically unable to file his/her income tax return. See, e.g., PLR 287456793400438 (July 22, 2266)(Klingon POW excused during years of incarceration); PLR 287456793400214 (April 7, 2264)(Taxpayer kidnapped by alien and taken to different galaxy excused until escaped); PLR 2874567924411 (May 12, 2259)(Taxpayer whose brain taken over by alien excused until evacuation).

Applying these authorities to the facts as presented, it is clear that none of the taxpayers on board the Enterprise were physically incapable of timely filing their income tax returns. This is evident by the successful use of z-mail by a number of the crew. While certain members of the crew may have been physically prevented from filing returns for periods of time (such as when you were suffering amnesia for 4 months while stranded on Antashia), these periods were not of sufficient length to prevent the timely filing of returns. Moreover, the failure to have accurate information to complete a final return does not excuse the taxpayer from estimating the tax due and making payment in full. It is the obligation of the taxpayer to err on the side of paying too much tax. Consequently, while the affected taxpayers may petition the IRS to abate the failure to file and/or failure to pay penalties, logic dictates that it is doubtful that the IRS will grant the requested relief.