T.C. Memo. ,2011-155

T.C. Memo. ,2011-155

UNITED STATES TAX COURT

CUSTOM SI'AIRS & TRIM, LTD., INC., Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 9204-09L.

Filed,July 5, 2011.

P filed a petition for review pursuant to secs. 6320

and 6330, I.R.C., in response to R's determination that

the lien and levy actions were appropriate.

Held: P exercised ordinary business care and

prudence in providing for payment of its tax liability.

R' s determin tion to impose a failure to deposit

penalty and

failure to pay addition to tax and to

proceed with collection actions is reversed.

Rebecca L. Cordes (an officer) , for petitioner.

John F. Drisdoll, for respondent.

SERVED JUL - 5 2011

- 2 MEMORANDUM FINDINGS OF FACT AND OPINION

WHERRY, Judge:

This case is before the Court on a petition

for review of a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330

determination) .

(notice of

Petitioner, Custom Stairs & Trim, Ltd., Inc.

(Custom Stairs) , through- its vice président, Rebecca L. Cordes

(Ms. Cordes), seeks review of respondent's determination to

impose a penalty and an addition to tax and to proceed with a

proposed levy and to keep in place a filed lien.

These collection actions stem from a penalty under section

6656 and an addition to tax under section 6651(a) (2) relating to

Custom Stairs' .unpaid employment taxes reported on Form 941,

Employer' s Quarterly Federal Tax Return, for the second quarter

of 2008.

The IRS imposed the penalties and the additions to tax

on Custom Stairs for 15 consecutive quarters beginninég in 2005;

only one of these quarters is in dispute.

The is'sue for decision

is whether the section 6656 (a) failure to deposit penalty of

$3,124.79 and the section 6651(a) (2) failure to pay addition, to

tax of $224.50 should be abated because Custom Stairs' failure to

IUnless otherwise indicated, all section references are to

the Internal Revenue Code of 1986, as amended, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

- 3 make the deposits was due to reasonable cause.2

As a result of

the penalties, pius interest and collection costs, less payments

made, Custom Stalrs' balance due as of April 3, 2010, was

$1,575.26.3

FINDINGS OF FACT

Some of the facts have been stipulated.

The stipulations,

with accompanying exhibits, are incorporated herein by this

reference.

At the time the petition was filed, Custom Stairs had

its principal business address in Pensacola, Florida.

During the

period at issue in 2008, Ms. Cordes was vice president of Custom

Stairs, a company in the business of building circular wooden

stairicases.

Custom Stairs timely filed Form 941- for the period

2Respondent's administrative file focuses almost exclusively

on the sec. 6656(a) penalty. The petition indicates in par. 5:

"I disagree that there was a neglect or refusal to pay" and "I

disagree that I did not establish reasonable cause to abate

penalties". See also Ms. Cordes' Dec. 10, 2008, letter to Susan

Shaw, the revenue officer assigned to-this case, "requesting

reductions of penalties". Similarly, in the attachment to Form

12153, Request for a Collection Due Process.or Equivalent

Hearing, under "Lien Withdrawal" item 3 Custom Stairs refers to

"penalties".

3The balance due, as of Apr. 6, 2010, per respondent's

records (Form 43 0, Certificate of Assessments, Payments, and

Other Specified Matters) was $1,595.26. This amount was derived

by adding the see. 6656(a) penalty of $3,124.79 and the sec.

6651(a) (2) additlon to tax of $244.50, respectively, to assessed

interest through Sept. 29, 2008, of $180.97 plus "collection

costs" of $45, less Custom Stairs' payment against the charges of

$2,000.

- 4

-

ending June 30, 2008, with a reported tax liability of

$28, 900.40.

Custom Stairs has beene in business since December 1985

fabricating stairways for residential properties along the Gulf

Coast..

Its troubles began in Seßtember 2004 when Hurricane Ivan,

the 10th -most intense Atlantic hurricane ever recorded, 4 struck

the Gulf Coast, severely damaging Custom Stairs' place of a

business andr severely affecting manysof its customers.

Inr2005 through 2008 as Custom Stairs felt the effects of

the hurricane, collapse of the housinge bubble, ands economic , o

recession, it began laying of f employees, , eliminating vacations

and paid holidays, and.cutting employee benefits.

In 2008 Custom

Stairs also contacted a real estate broker and listed its office

property with t-he hope of using the proceeds to pay of f the

company' s debts .

Custom Stairs has a history of timely filing its Forms 941

and making deposits of the tax assessed.

hurricane

However, fèÍlowing -the

it also has a history of failing to pay tlie full

amount and having to pay penalties and interest.

Because of the

hurricane, Custom Stairs fell behind with its employment taxes in

early 2005 and was thereafter consistelitly in arrears.

FcÌr most

4This Court takes judicial notice of the severity of

Hurricane Ivan.

- 5 -

of these calenda:: quarters Custom Stairs actually paid over to

the Internal Revenue Service (IRS) amounts that would have fully

satisfied its liability for the current quarter; but the IRS

applied its payments to prior arrearages, leaving all or portions

of each successive quarter's required deposits underpaid.5

In

short, following the hurricane Custom Stairs never asked for, nor

did it receive, any penalty relief or a clean penalty-free start

until it sought relief in the 2008- quarter at issue here.

Below

is a table showing Custom Stairs' history with respect to the

Federal tax deposit penalty ands failure to pay addition to tax

for the quarters ended March 31, 2005 through 2009.

Penalties, Additions to Tax., Interest Assessments, and Payments

Federal Tax

Deposit

Penalty

Failure

To Pay

Addition

---

---

$1,301.01

Quarter Ended

Date of

Ashessment

Mar. 31, 2005

Jun. 27, 2005

$1,301.01

Jun. 30, 2005

Oct. 10, 2005

1,412.09 .

$49.68

$41.15

1,502.92

Sep. 30, 2005

Dec. 26, 2005

2,394.06

109.58

74.10

2,577.74

Dec. 31, 2005

Apr. 03, 2006

2,091.85

---

---

2,091.85

Mar. 31, 2006

Jun. 26, 2006

1,647.09

---

---

1,647.09

Jun. 30, 2006

Sep. 18, 2006

11,989.23 -

-__

212.70

2,001.92

Sep. 30, 2006

Jan. 01, 2007

1,735.37

38.80

32.41

1,806.58

Interest

Payments

sCustom Stairs co'uld have entirely avoided liability for

additions and/or penalties in all but 5 of the 16 quarters for

which they were itssessed by allocat'ing differently the tax

payments that it made. With .such designations, the payments that

Custoin Stairs is stipulated to haee made would have timely paid

its employment tatxes for 11 of the 16 delinquent quarters, and

Custom Stairs would thereby have avoided the great majority of

the $27, 000 in penalties and additions that were assessed against

it .

- 6 Deci. 31, 2006* Apr. 02, 2007

1,710.-42

---

-

1,710.42

Mar. 31, 2007

May

28, 2007.

324.25

---

---

324.25

Jun. 30, 2007

Sep. 03, 2007

3778.97

0.40

0.30

. 819.67

Sep. 30, 2007

Dec. 31, 2007

1,519.92

44.46

33.45

1,597.83

Dec. 31, 2007

Apr. 07, 2008

1,845.56

'72.57

556.51

'l,974.64

Mar. 31, 2008

Jun. 16, 2008

72,860.65

56.84

838.85

92,938.10

Jun." 30, 2008

Sep. 29, 2008

1°3,169.79

224.50

180.97

2,000.00

Sep. 30, 2008

Dec. 15, 2008

831.67 2

---

--

831.67

Dec. 31, 2008

None

---

---

Mar. 31, 2009

May

Total

25, 2009

605.03

26,216.96

Net total assessed

27,286.55

Less paymerits

25,733.02

Amount remairiing

1, 553 . 51

596.83

-

--"2.32

607.35

472.76

25,733.04

A statutory notice of intent to levy was issued on Oct. 23, 2006.

2This interest was assessed on Nov. 20, 2006.

3An additional $2 was assessed on Oct. 8, 2007, but was "cleared" after

payment was received. Resolution, of the apparent $38 overpayment- is not

explained in the record.

*Of the $92.19 failure to pay addition to tax originally assessed,

$19.62 as well as $5.25 of the $64.03 originally assessed interest was abated

on Apr. 14, 2008 .

sAn additional $2.27 of interest was abated and refunded on May 26,

2008.

'After the $2.27 of interest abated and refunded on May 26, 2008.

'An additional $110 .17 Federal tax deposit penalty was assessed on

July 21, 2008, .which was abated on July 21, 2008, after payment was received

A statutory notice of intent to levy was issued on Sept. 1, 2008.

aAn additional $18.14 of interest was assessed on July 21, 2008, and

abated on Oct. 6, 2008.

"After $18.24 was refunded.

°$2,729.64 was initially assessed,on Sept. 29, 2008, and an additional

$395.15 Federal tax deposit penalty was assessed on Nov. 3, 2008. This also

includes $45 of collection costs charged to Custom Stairs . An intent to levy

collection due process notice levy notice was issued on Nov. 20, 2008.

"This $2.32 was assessed on Aug. 31, 2009. A statutory notice of

intent to levy was issued on June 29, 2009.

"The apparent $21.75 discrepancy. is not explained ,in .the record

For the tax period ended Jurie 30, 2008, Custom Stairs was

required .to make employment tax deposits on April 9, April 16

April 23, Appil 30, May 7, May 14, May 21,. May 28, June 4,

June 11, June 18, and June 25.

During this period the IRS

- 7 treated no-payments of Customistairs as tax deposits for the

quarter ended June 30:, 2008; t-he. afirst payment -that, the IRS

treated as-a deposit -for thisaquarterswas received by respondent

on July. 3, 2008.

By the -time Custom Stairs timely filed Form 941

for the tax period ended Juneu30,. 2008,, Custom Stairs had-made

$7 p113 . 94 of payments that the «IRS treated as deposits on the

$28, 90.0 . 40 ,due . , As ref lected in the preceding table, on September 29, 2008, a $2,329.64.penalty,under section 6656,

Failure to Make, Deposit of Taxes, was assessed against, Custom

Stairs for ,the second quarter of 2008

at issue, .and an

additional $395 .15 was assessed ,on. November 3, 2008 . •

However, Custom Stairs had in fact made paymentsitotaling

$29,4,81.65--i.e:

more than the liability for ,the quarter ended

June .310, 2008--before the due date for the Formr941.

Custom

Stairs÷had notadesignatedathem for that current'quarter, however,

and the IRS allocated-them.instea:d to theapriorsMarch 31, 2008,

quarter, which was sinearrears:and for whichapenalties had already

been assessed.

BecausesofaCustom Stairs' -nonallocation and

timing of its payments within the.June»30, 2008, quarter,

penalties and "additions were eventually assessed ,against it Efor

both those squarters .

On July 30, 2008

4m a

an internalarevenue officers whose

pseudonym .is -Susan Shaw (Of f icer -Shaw) , visited Custom Stairs

aftereshe was notified -that there had been a substantial -drop in

- 8 its Form 941 Federal tax deposit levels.

She explained that the

main purpose is "to try to gets early intekvention with businesses

that are falling behind in their payroll tax deposits."

Officer

Shaw met with Ms. Cordes and explained that the most important

thing was for Custom-Stairs to get and stay current.

She

directed that Custom Stairs pay current taxes first'.

Ms. Cordeå

explained to Officer Shaw, that'the hurricane and .economic

downturn had severely affected their construction-basëd business.

Officer Shaw-left a handwritten-Form 9297, Summary-of

Taxpayer Contact, which, under the heading "Information/Documents

required", stated:

"Provide 'current-profit &' loss",

"accounts

receivable listing",

"balance sheet/asset,listing",

"bank

statements & canceled checks 4/1/2008-7/1/2008",

bank signature card",

"copy of the

"copy-of 1120 for 2007", and "provide

personal financial statements".

Officer Shaw explained that

these documents were needed so that respondent ^could compile a

collection plan, determine whether the finances would support- an

installment agreement, or determine whether respondent could

direct Custom Stairs to get a loan to pay the full amo'unte

- On August 1, 2008, Ms. Cordes called Officer Shaw and

4,

-

explained that she believed that Custom Stairs would be-able tb

pay all past due tax liabilities within 8 weeks.

Officer Shaw

agreed to the proposal and apparently suspended any additional

investigation and financia-1 review until October 1, 2008.

'On -

-. 9 September 29, 2038, Officer Shaw noted that Custom Stairs had met

its current tax Liabilities and that it had made about $15,000 in

deposits against past due amounts over the past 8 weeks.

She

noted that the balance "due [approximately $16,000] will be

resolved in a short time" but if the past due amounts were not

paid in full by october 31, 2008, she would have to secure the

bank records and documentation requestedo at the initial meeting.

Officer Shaw communicat'ed thernew deadline to Custom Stairs and

stated that if the remaining liabilities, were not paid, Custom

Stairs would have to provide sthe recôrds requested or a lien

would be filed and a levy might be initiated.

Officer Shaw also

noted that "TP [laxpayer] appears to be making swift progress, in

a construction/real estate related business, during a very poor

economic time."

On October 30, 2008, Officer Shaw noted that Custom Stairs

was up to date on current liabilities and had a balance of

$11,434 on past due liabilities.

She noted that Custom Stairs

was "not pyramidLng" and that they- appeared "to be earnestly

resolving delinquency, despite this being a construction related

business, during a very poor economic cycle for home

construction."

officer Shaw decided to delay following up with

Ms. Cordes until November 17, 2008, and communicated that

extension to Ms. Cordes.

A liability tremained on November 20,

2008; and because Custom Stairs had failed to make the deposits

-

- 10 --

it promised and bring itself current by that date, a lien was filed.

On November 20, 2008, Custom Stairs was sent a Final Notice,

Notice of Intent to Levy and Notice of Your Right to a Hearing

(CDP levy notice), showing $9,919.27 still owed for the quarter

ended - June 30, 20 08 .

On December 2, 2008 , Custom Stairs . was

mailed a Notice of Federal Tax Lien Filing and Your Right to a

Hearing.

Custom Stairs, on December 11, 2008, timely, filed a

Form 12153, Request for a Collection Due Process =or Equivalent Hearing.

Under the heading,'"Offer in. Compromise" Custom-Stairs

requested a "reduced penalty, under the present economic

conditions"; and under the,heading, "Lien Withdrawal" Custom

Stairs stated that the lien was, filed prematurely because Custom

Stairs had been keeping current while slowly making up the past

due li·abilities.

It also stated that as of .December 4, -2008, all

of the past due amounts (except penalties) had been paid.

By letter dated February 18, 2009, Peter Salinger, the

settlement officer of the Tampa Appeals «Office (Settlements

Officer Salinger) assigned to the case, informed Custom Stairs

that a telephone conference was scheduled for March 18, 2009

Ms. Cordes responded to the letter on March 2, 2009, explaining

that she helieved- that the lien was unreasonable.

She again

explained that because the underlying taxes had been paid and the

- 11 -

only balance for that period was a penalty that she claimed

should be abated for reasonable cause, the lien was unnecessary.

During the t.elephone hearing conducted on March 18, 2009,

Ms. Cordes explained to Settlement Officer Salinger that she did

not feel that she had to submit the ~requested documentation

because she had been making payments on the -delinquent tax

liability.

Settlement Officer Salinger explained that under his

analysis Custom Stairs did not hive reasonable cause for the

abategent of the penalty.

'Custom Stairs did not submit any of

the documentation- requested," and no collection alternatives were

offered.

When Settlement Officër. Salinger asked Ms. Cordes how

she wished to resolve the liability, she informed him that she

did not know beccuse she did not have the money sto pay it.

On March 26, 2009, Appeals Team Manager, Clifford Whitely,

mailed Custom Sttirs a Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330

(determination letter-).

The letter explained that "the Notice of

Intent to Levy should not be withdrawn" and "the Notice of

Federal Tax Lien will not be withdrawn".

"It stated that the lien

was reasonable urder the circumstances and that ,all of the legal

and procedural requirements had been met.,

Custom Stairs timely

filed a petition with this.Court on April 16, 2009, for review of

the Appeals Office's actions and the determination letter.

Custom Stairs cléimed that because it could not- pay the tax

- 12 -

liability there was reasonable cause for the failure to pay and

therefore the penalties should be abated.

Custom Stairs

concluded that since the penalty was simproper, there was no

underlying tax liability to,warrant a lien against its, property

and thus the lien was unnecessary and unreasonable.

On February 5, 2010, respondent filed a motion for summary

judginent,sand on March 10, 2010, Custom Stairs timely filed a

response.

By order dated April 13, 2010, this. Court denied

respondent's motion.

'It did so because it determined that

e

"Whether petitioner's failure to- pay taxes was due to reasonable

cause is a material issue of fact".

Summary judgment is

.4

appropriate only :where "the spleadings, answers to

interrogatories, depositions, admissions, and any other

acceptable materials, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that a

decision may be rendered as a matter sof law."

Rule 121(b).

A

trial was held on-May 24, 2010, in Mobile, Alabama.

OPINION

Section 6320(a) and (b) provides that a taxpayer shall be

notified.in writing by the Commissioner of the filing of sa notice

of Federal.tax lien.and provided with an opportunity for am

administrative hearing.

An administrative hearing under section

6320 is conducted in accordance with the procedural requirements

of section 6330.

Sec.

6320(c).

- 13 -

Section 6331(a) authorizes the Commissioner to levy upon

property or property rights of a taxpayer liable for taxes who

fails to pay thoge taxes within 10 days after a notice and demand

for payment is made.

Section 6331(d) :provides that the levy

authorized in section 6331(a) may be made with respect to unpaid

tax liability on]y if the Commissioner has given written notice

to the taxpayer 30 days before the levy.

Section 6330(a)

requites the Commissioner-to send a written notice to the

taxpayer of the amount of the unpaid tax and of the taxpayer's

right to a section 6330 hearing at least 30 days before the levy

is begun.

If an administrative hearing is requested in a lien or levy

case,ithe hearing is to be conducted by the Appeals Office.

Secs. 46320(b) (1),

6330(b) (1).

At the hearing,

the Appeals

officer conducting it must-verify that the requirements of any

applicable law or administrative procedure have been met.

6320(c), 6330(c) 1).

Secs.

The taxpayer may raise any relevant issue

with regard to the Commissioner's intended collection activities,

including spousa] defenses, challenges to the appropriateness of

the proposed ¯levy, and alternative means of collection.

6330(c) (2) (A);

see also Sego v. Commissioner, 4114 T.C.

(2000); Gdza v. Commissioner, -114 T.C. 176,

Sec.

604,

609

Ì80 (2000).

Taxpayers are expected to provide all relevant information

requested by AppEalS, including financial StatementS, fOr its

- 14 consideration of the facts and issues involved in the hearing.

Secs.

301.6320-1(e) (1), 301.6330-1(e) (1)-, Proced. & Admin. Regs.

If a taxpayer' s underlying liability is properly sat issue,

the Court reviews' any determination regarding the underlying

liability de novo.

Sego v. Commissioner, supra at -610; Goza v.

Commissioner, supra at 181-182.

We review any, other

administrative determination regarding the proposed collection

action for abuse of discretion.

Sego v. Commissioner, supra at

610; Goza;v. Commissioner, supra.at 181-182.

If raised at a hearing by the taxpayer, a taxpayer' s

underlying liability is properly at issue if the taxpayer "did

not receive any statutory notice of deficiency for such tax

liability or 'did not otherwise have an opportunity :to dispute

such tax liability." . Sec. 6330 (c) (2) (B) . , A taxpayer generally

is treated as not having had an opportunity to dispute a

liability that, is self -reported as due on a return.

v. Commissioner, 122 T.C. 1,. 9 (2004) .

receive a notice of deficiency.

Montgomery

Custom Stairs did not

Respondent has not shown,

indicated, or alleged that Custom Stairs had an opportunity- to

dispute the tax liability, and the penalty was related to a

liability that was self-reported as due on the return.

Consequently, the underlying liability is properly at

sed .

6330 (c) (2) (B) .

issue.

See

-

15

-

Under section 6656(a) if a taxpayer fails to make a required

deposit on the dEte prescribed for that deposit, a penalty equal

to the applicable percentage of the amount of the underpayment,

determined pursuant to section 6656(b), shall be imposed.

Section 6656(a) Elso provîdes that the penalty shall not be

imposed if "it is shown that such failure is due to reasonable

cause and not due to willful neglect".

Likewise section

6651(a) (2) imposes an addition to tax of 0.5 percent per month up

to an aggregate total maximum of 25 percent for failure to timely

pay tax.

This acidition to tax'is also not to be applied if the

failure to pay.w s due to reasonable cause and not willful

negleat.

Caselaw and legislative history indicate that the.primary

purpose of these penalties is to ensure compliance.

United

States v

101-247, at

1403

Boyle, 469 U.S. 241, 245

(1989).

(1985); H. Rept.

The Commissïoner's policy statement explains that

the "Penalties are used to enhance voluntary compliance. * * *

Penalties provide the Service with an important tool * * *

because they enhEnce voluntary compliance by taxpayers."

Internal Revenue Manual (IRM) Exhibit 20~.1.1-1, Penalty Policy

Statement 20-1

(Dec.

11,

2009)-.

it is uncontested that Custom Stairs failed to make the'

requi ed 2008 second quarter deposit payments by the dates they

-

were due.

16

-

We must decide whether, that failure was due to -

reasonable cause and not willful neglect.

Custom Stairs during the,years 2005 through June 2008 was

consistently in arrears,.so that the numerous undesignated

a

paymentstit made were frequently applied to pay past, due

liabilities.

Final payments satisfying thertotal tax amounts due

under the returns as filed were made shortly after sthe lien was

filed, ,leaving unpaid only a portion cof the- 2008 second quarter

penalties that had been.assessed.

Custom Stairs casserts that it had not fully recovered from

the damage caused in 200.4 by Hurricane Ivan when it begans to feel

the effects of the economic recession in 2008.

Custom Stairs

responded byelaying off employees, eliminating vacations ånd paid

holidays, and curtailing employee benefits.

It even

unsuccessfully attempted to sell the real property in which it

conductedsits business,- in an effort to remain current with its

taxes and pay off its debts.

Custom Stairs did not make the Federal tax deposits because

there was "not enough to pay.the. taxes" and meet its other

crucial operating expenses.

Mrs. Condes explained that "I have

made conscious decisions to pay perhaps a vendor,* *,i but when

I've made a decision to not pay a tax payment on time'versus a

vendor, it was simply to continue to stay ,in business."

Custom

Stairs claims that its inability to timely pay the taxes on

- 17 -

account of the ll.ngering effects of Hurricane Ivan-and the

economic recession,.in the acontext of this case, constitutes

reasonable cause

eRespondent asserts that the mere inability to pay

coupled

with the payment of other creditors rather -than the Treasury, is

never reasonable cause for abatement of, the failure to deposit,

penalty.

However, a majority of the Courts of Appeals that have

decided this issue have determined "that financial hardship can,

under certain circumstances, justify failure to pay-and deposit

employment taxes' .

F.3d 1035,- 1038

United States,

Dia'mond Pla'ting Co; v. United States, 390

:7th Cif. 2004)

(citing Van Camp & Benn'ion v.

251 FT3d 862; 868 ~(9th Cir. 2001), East <Wind

Indus.,- Inc. v. United States, :196 F 3d :499; 507 508:(3d Cir.

1999) , and Fran Corp. iv. Unitled States,

Cir.

1999)).

589,

592

164 F.3d 814,

819

(2d

But:ssee Brewery, Inc. v. United States, 33 F.3d

(6th Ciri.

1994) .

«IRM JExhibit 20.-1.1-3 specifically

states, under-the table heading "General Penalty Relief", that

inability to pay is "Rarely Allowed on Employment Tax Deposits",

implying that in certain rare circumstances, it is allowed.

Respondent notes that this is'not a firsta-t-i'me offense and-

that Custom Stairs'has been continually delinquent 'in making

employment tax deposits as reflected in the table supra.'

In

'But see supra note 5, exþlaining that, had Custom-Stairs designated its pé.ymedts differently; it would have -bean

(continued...)

- 18 -

respondent' s opinion,- these facts negate any reasonable cause

defense.

Regulations promulgated under section 6656 do not

address "reasonable cause" except as to first-time depositors.

See sec. 301.6656-1, Proced. & Admin. Regs. s We will, therefore

look to the analogous late-payment additions to tax under section

6651(a) (2) although we recognize it is not a. "penalty" provision

per se.

«

Reasonable cause will be found if the taxpayer "exercised

ordinary business care and prudence in providing for payment cof

his tax liability, and was nevertheless either unable to pay the

tax or would suffer an undue hardship"..

Proced: & Admin. Regs.

Sec. 301.6651--1(c) (1)

In determining whether the taxpayer

exercised ordinary business .care and prudence,

"consideration

will be given to all the facts and circumstances of the

taxpayer's financial situation, including the amount and nature

of the itaxpayer's expenditures iir light of the income".

&

The

primary factors in determining whether a -taxpayer exercised

6(...continued)

delinquent in only 5 of the 16 quarters.

We have found the sec. 6656 penalty and attendant

reasonable cause exception similar to the sed. 6651(a) (2)

addition to tax before, even referring to sec. 6656 as an

addition to tax.

See Charlotte's office Boutique, Inc. v.

Commissioner, 121 T.C. 89, 109 (2003), supplemented by T.C. Memo.

2004-43, affd. 425 F.3d 1203

(9th Cir. 2005) .

We also note that

the definition of "employment tax" does not exclude penalties.

See Ewens & Miller, Inc. v. Commissioner, 11'/ T.C. 263, 268

(2001) .

- 19 ordinary business care cited by the Courts of Appeals that allow

a reasonable cause defense for the inability to make employment

tax deposits are:

(1) The taxpayer's favoring other creditors

over the Governmént,

(2) a history of failing to make deposits,

(3) the taxpayer's financial decisions, and (4) the taxpayer's

williñgness to décrease expenses and personnel.

v. United States,

482 F.3d;792

Staff It, Inc.

(5th Cir. 2007); Diamond Plating

Co. vt United Stëtes,, supra at 1038;.Van Camp & Bennion v. United

States, supra at 868; East Wind Indus.,. Inc. v. United States,

suprajat 508-509; Fran Corp.. v. United. States, supra at 819-820.

We begin by recognizing that Custom Stairs has, with great

effort and tenacity, eventually paid off all of the liability

shown on the Jun€ 2008 quarterly Form 941 tax return.

Nevertheless, Trtst Fund Business Master File tax payments are a

particularly sensitive item for the Commissioner.

The 'Government

depends on the employer, as its agent and fiduciary, to timely

collect and time]y pay over these taxes from third-party

employees and to make certain matching payments itself.

The

Government must cive the employees credit for the withheld

amounts even wher they are withheld:and not paid over.

Penalties therefore serve an important deterrence function,

and the taxpayer bears a heavy burden when seeking to avoid a

failure to pay or deposit penalty.

That said, here the deterrent

goal has been served with over $27,286.55 of penalties assessed

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and-$25,733.04 collected.

Moreovery-it cannot be-said that,

during the time -relevant to its liabilities for the quarter ended.

June 30, 2008, Custom Stairs held onto the taxes it had withheld.

from its employees rather than paying them over".2 On the

contrary, during the period for making deposits of those taxes,

Custom Stairs paid over to the ,IRS amounts greater than the

employment taxes it owed for that period (including trust funds).

Only because there were arrearages from prior quárters--for which

Custom Stairs has fully paid penalties that are not in dispute-did'the IRS characterize the payments made by Custom Stairs as

pertaining to a prior quarter.

In applying the four factors discussed above and other facts

particular to Custom Stairs, we find that Custom Stairs' failure

to make 'the deposits, in the context of the cascading, penalties

encountered here, was due in significant part to Hurricane Ivan,

the 2008 economic collapse,s and the practical fact of the

cascading penalties themselves.

Quarter after quarter current

funds were used to pay then-assessed penalties for the prior

quarter at- the cost of not making all timely deposits for the

current quarter.

Given the unique and compelling facts present

here, we conclude the failure to timely deposit and pay was due

to reasonable cause.

Custom Stairs has favored other creditors over the

Government and has a record of 15 consecutive quarterly instances

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since 2005 where a penalty was assessed for failure to timely

make tequired deposits.

Despite these facts, we find that Custom

Stairà has exercised ordinary business care -in its financial

decisions and its willingness to decrease expenses and personnel

in order to pay tax, interest, and penalties.

Custom Stairs

failed to allocate to its own advantage the payments that it

made, and the IRS cannot be criticized for making its own

allocation to prior quarters; but during the relevant time

period, Custom Stairs' lapse was its failure to have paid in

prior quarters and its failure to allocate, not any current

failure to pay over to the IRS the- tax it had withheld from its

employees.

Respondent essentially argues that if Custom Stairs cannot

afford to make its tax payment timely it should go out of

business.

Howevec,

"Both the economy and the federal fisc are

negatively impacted by'auch an approach--the amount of money

flowing into the economy and the fisc :ù3 reduced as a result of

increased unemployment, idle buildings and plants, and decreased

sales of goods and šervices." , East Wind Indus., Inc. v. United

States, supra at 509.

Custom Stairs paid to the IRS the money

withheld from its employees, and the IRS allocated those payments

toward previous liabilities and penalties.

Surprisingly, at

substantial sacriEice by its owners who provided personal funds,

even credit card aharges, it has managed to stay in business.

As

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to every other quarter it has both made the required late deposits and paid the resulting penalties and interest in full.,

The details of Custom Stairs' efforts are elaborated on by Ms.

Cordes' March 2, 2009, letter to Mr. -Salinger and the National

Taxpayer Advocate's memorandum attached to Custom Stairs' Appeals

Office correspondence.

Even respondent's Officer.Shaw noted that Custom Stairs

"appears- to besmaking swift progress, in a construction/real

estate-related business; during a very poor economic time."

Custom Stairs was providing for the payment of its taxes and

making swift progress on its past due taxes during.a bad economy.

One month later Officer Shaw noted that Custom Stairs was "not

a

pyramiding" by staying current with new tax liabilities.and that

it appeared "to be earnestly resolving delinquency, despite this

being a construction related business, during a very poor

economic cycle for.home-construction."

Officer Shaw had informed

Custom Stairs that its primary goal was to stay current while

making up.the- delinquent payments, and it had done just that.

Custom Stairs has exercised ordinary business care ands

prudence in cutting benefits and payroll, selectively and

prudently paying business expenses, and attempting to.sell its

real property to provide.for-the timely payment of its tax

liability:

Therefore we find that the reasonable cause necessary

to'negate, in accordance with their terms, the application of the

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section 6651(a) (2) addition to tax and the section 6656 penalty

is present in this instance.

The Court has considered all of respondents' contentions,

arguments, requests, and statements.

To the extent not discussed

herein, the Court concludes that they are meritless, moot, or

irrelevant.

To reflect the foregoing,

Decision will be entered

for petitioner."

"We note that because we have found that the penalties must

be abated, petiti ner may be entitled to a refund. However, this

Court |does not ha e jurisdiction under sec. 6330 to order a

refund. Greene-T apedi v. Commissioner, 126 T.C. 1, 21 (2006).