Dealers Auto Auction v. Commissioner

What should we learn from Dealers Auto Auction of Southwest LLC v. Commissioner?

Facts:
- Dealers Auto Auction failed to file and furnish required information returns in 2014 and 2016.
- Due to the history of noncompliance, the IRS imposed penalties under IRC 6721 & 6722, totaling $21,200.
- Dealers took the issue to appeals, and challenged for penalty abatement citing the failure of the software provider to perform necessary tasks.

The Court's Response:
- The Court found that Dealers did not have reasonable cause, not meeting the criteria for significant mitigating factors due to the history of noncompliance.
- The duty of filing informational returns is nondelegable, meaning that reliance on the software provider is not reasonable cause for late filing or unfiled returns (United States v. Boyle)

What was the outcome?
- The Court sided with the IRS, finding that Dealers failed to establish the accused software failure or establish responsible behavior before or after the failure to file, thus providing no reasonable cause for its failure to file informational returns.

What does this mean for taxpayers and tax practitioners?

Reliance on technology isn't the defense we may think it is - ultimately, the taxpayer needs to exercise due diligence when it comes to compliance. This can be accomplished by implementing proper internal controls and maintaining documentation of services explicitly provided by software providers to ensure clear expectations of outsourced business functions.