Tax Court Rejects IRS’ Attempt to Narrow Reasonable Cause Exception

Earlier this month, the Tax Court rejected an argument by the IRS that in order to establish good faith reliance on a tax advisor, for purposes of avoiding penalties, the taxpayer, a foreign corporation, needed to have (1) conducted an independent investigation into the tax advisor’s background and experience instead of merely relying upon the recommendation of the tax adviser by the taxpayer’s US legal counsel, and (2) hired a tax expert that specialized in international tax law or an attorney with an LL.M. degree.  The Tax Court found that the IRS attempted to impose greater conditions on the taxpayer than what is required under existing law. The Tax Court ruled that the taxpayer reasonably relied upon the recommendation of its legal counsel in hiring the tax advisor. Furthermore, the standard is not whether the tax advisor was an expert in international tax law or an attorney with an LL.M. degree, but instead whether the tax advisor was “a competent professional who had sufficient expertise to justify reliance.”

The opinion in the case, Grecian Magnesite, Industrial & Shipping Co., S.A. v. Commissioner, 149 T.C. 3 (2017), can be found here.

Michael J. Wilson
mwilson@williamsparker.com
941-536-2043