Legal Memorandum: Excusable Delay in Filing Tax Returns

Issue: Does a taxpayer suffering from deep, profound depression meet the criteria for excusable delay in filing tax returns, excusing him or her from penalties associated with the failure to file?

           Assume, for purposes of this discussion, that taxpayer suffers from a deep and profound depression following a divorce.  The taxpayer is left with two children, no credit, no assets, and, what appears to be no meaningful hope for the future.  While the taxpayer has found work to support her and her family, her personal life remained chaotic—changing jobs and moving from one part of the country to another.  The taxpayer did not clean house, cook, open mail, pay bills, leave the house, socialize or develop any interests outside of work.  The mortgage was on the brink of foreclosure and utility companies repeatedly threatened to turn off utilities.  The taxpayer developed an eating disorder with weight soaring over 200 pounds.  Taxpayer has been under the care of mental health professionals and has weekly, even semi-weekly therapy. 

The delinquency penalties for a failure to timely file or a failure to pay taxes will not be imposed if the failure is due to reasonable cause and not willful neglect.  I.R.C. §§6651(a)(1), (2).  The regulations do not give a definitive, measurable standard for reasonable cause, but provide that "[i]f 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."  Treas. Reg. § 301.6651-1(c)(1).

In the absence of any meaningful statutory or regulatory definition, courts have struggled with the meaning of reasonable cause.  The leading case interpreting the term "reasonable cause" as […]