LATE FILED EXCISE TAX RETURNS
Proprietors of Distilled Spirits Plants, Bonded Wine
Cellars, Brewers, Tobacco Product Manufacturers and others
concerned:
PURPOSE: The purpose of this circular is to reempha-
size to all persons who pay excise tax that penalties and
interest are incurred for any returns which are filed
late.
BACKGROUND: In Industry Circular 81-10, the Bureau
pointed out that there had been a substantial increase in
the number of excise tax returns filed late, as evidenced
by the number of offers in compromise of penalties
incurred for late filing. This circular points out that
penalties for such violations may be compromised only
where there is "reasonable cause" for the late filing, and
that the burden of proving "reasonable cause" is on the
taxpayer.
Despite the advice given to the taxpayers in Industry
Circular 81-10 the number of excise tax returns filed late
has continued to increase. Some of the offers in com-
promise of penalties for late filing violations have been
accepted in amounts as small as one-half of one percent of
the delinquent taxes. This has been fairly equitable
for compromising the small number of late filings in the
past, where unusual circumstances resulted in the delay.
However, the recent increase in late filings indicates a
degree of carelessness on the part of taxpayers.
TEXT: The penalties for failing to file a tax
return on the date prescribed are set forth under 26 CFR
301.6651-1 (a)(1). The amount to be added to the tax is 5
percent thereof if the failure is for not more than one
month, with an additional 5 percent for each additional
month or fraction thereof during which the failure
continues, but not to exceed 25 percent in aggregate.
If the tax return is filed even one day late, the taxpayer
is liable for an additional 5 percent of the tax.
Pursuant to 26 CFR 601.327, a compromise of the
penalty is justified where there is either doubt as to
liability or doubt as to ability to pay. The tax and
interest will be collected without compromise. In the
overwhelming majority of late filings, a compromise of the
penalties is considered on the basis of doubt as to
liability. This doubt usually results from a bona fide
dispute as to whether the reason for the late filing is
the result of "reasonable cause." The Bureau's standard
for "reasonable cause" focuses on whether the taxpayer
exercised "ordinary business care and prudence," as called
for under 26 CFR 301.6651-1(c)(1). Where there is no
reasonable cause, and the late filing is due to willful
neglect, there is no room for compromise. If, however,
there is reasonable cause and no willful neglect, there is
no basis for assessment.
The amount of an offer in compromise of penalties is
determined by evaluating the taxpayers' explanation for
the late filing in light of the facts of the case. The
Bureau does not recognize employee neglect or oversight as
a reasonable cause for a company's late filing. Absence
of the employee responsible for preparing or filing the
tax return would also be insufficient to establish
reasonable cause for a late filing. Proprietors are
expected to train back-up personnel to prepare and file
excise tax returns so that the absence of one employee
will never result in the late filing of a return. See
Industry Circular 81-10 for further examples of what
constitutes "reasonable cause." The responsibility of
showing all facts alleged as a reasonable cause is with
the taxpayer who wishes to avoid the addition to the tax.
The taxpayer's past history of late filing and corrective
measures taken to prevent future occurrences are con-
sidered in the determination of the amount of the offer in
compromise.
The Bureau is reemphasizing that if the taxpayer
files a return even one day late, the Government will
assess late-filing penalties unless the taxpayer can prove
there was reasonable cause for the late filing. If the
Bureau finds that the taxpayer's lack of business care and
prudence rise to the level of willful neglect, the offer
in compromise will not be accepted.
INQUIRIES: Inquiries concerning this circular should
refer to its number and be addressed to the Assistant
Director, Regulatory Enforcement, Bureau of Alcohol,
Tobacco and Firearms, 1200 Pennsylvania Avenue, N.W.,
Washington, DC 20226.
![W.T. Drake](https://webarchive.library.unt.edu/web/20130221090650im_/http://www.ttb.gov/images/wt_drake.jpg)
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