Court Rules that Exempt Organization Late-Filing Penalties are Mandatory

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Via the Journal of Accountancy

The Ninth Circuit Court of Appeals held that late-filing penalties imposed on tax-exempt organizations under IRC § 6652(c)(1)(A) are mandatory, and cannot be reduced by the courts or the IRS.  The ruling overturned an earlier district court decision (Service Employees Int’l Union, docket no. 07-17256 (9th Cir. 3/17/10)).

Although ruling that the Service Employees Int’l Union (SEIU) lacked reasonable cause for failure to file timely returns for 1999, the district court held that the IRS “as a matter of discretion” should have reduced the penalty amount of $50,000 which was imposed for filing 20 months late. 

Upon appeal by the IRS, the Ninth Circuit found that the Internal Revenue Code “uses mandatory language in all respects, leaving the IRS no discretion in deciding how much penalty to impose.”

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