Can drug addiction or migraines be an excuse for filing a tax return late? The court addresses this in Jordan v. Commissioner, T.C. Memo. 2005-266, for a life insurance salesman who became addicted to OxyContin prescribed for his severe headaches.
Facts & Procedural History
Mr. Jordan was a life insurance salesman. Mr. Jordan had a medical condition whereby he experienced headaches. He had seen numerous doctors and has tried a variety of different medications and treatments for his headaches, such as Darvocet, Percocet, Ativan, and even injections of Botox in his neck.
His doctor prescribed OxyContin in 1996 and increased the dosage over the years. Mr. Jordan became dependent on OxyContin and sought additional prescriptions from other doctors and early refills of the medication.
Mr. Jordan tried to stop taking the drug and was hospitalized and treated in rehab in 1999. His finances were in disarray, he was disorganized, and he was experiencing some memory problems and his house was sold in foreclosure.
The Unfiled Tax Returns
He did not file Federal income tax returns for tax years 1997 through 2002.
Mr. Jordan began to organize his receipts and information to give to his accountant in late 1999. His goal was to file all late returns at one time. It took several years.
In October of 2003, the IRS contacted Mr. Jordan about his unfiled tax returns. Mr. Jordan did not provide the information the IRS requested and the IRS issued a notice of deficiency to Mr. Jordan.
Late Filing Penalties
In July of 2004, Mr. Jordan filed his 1997-2002 income tax returns. The IRS responded by imposing late filing penalties.
Mr. Jordan asked the court to review the penalties that were imposed. Specifically, Mr. Jordan asked the court to decide whether his failure to file timely was due to reasonable cause. Mr. Jordan argued that his drug addiction and the time he spent in drug rehabilitation, as well as his other medical problems and related memory loss constitute reasonable cause for his failure to timely file a return for the years at issue.
Reasonable Cause to Avoid Penalties
Reasonable cause and good faith can be a defense for late filing penalties. To qualify, a taxpayer must show that he or she exercised ordinary business care and prudence but was nevertheless unable to file the return within the prescribed time.
The court evaluated the prior court cases that address reasonable cause. It focused on the cases that hold that a taxpayer does not have reasonable cause for his or her failure to timely file a return where the taxpayer’s illness does not prevent the taxpayer from filing his or her return.
The court reasoned that:
Although petitioner testified he experienced some memory problems, petitioner was able to continue his life insurance business during the years at issue. In fact, petitioner’s gross receipts for 1999 and 2000 were the two highest totals for all years from 1997 through 2002. Selective incapacity only with respect to income tax returns is not sufficient to prove reasonable cause. Wright v. Commissioner, supra. We find petitioner’s illnesses did not incapacitate him so severely that he was unable to conduct his business affairs during the years at issue. We find, therefore, that petitioner’s illnesses also did not render him unable to timely file his returns for the years at issue.
Thus, the court held Mr. Jordan liable for the penalties.
To sum up, migraines and addition to drugs to remedy them are not reasonable cause for late filing of tax returns. These facts don’t establish reasonable cause for abating late filing penalties.