U.S. Tax Court upholds $10,000 penalty against a PRIVATE foundation who filed a return late
In Grace Foundation v. Comm., T.C. Memo 2014-229, the U.S. Tax Court sustained an Internal Revenue Service levy of a $10,000 penalty on a private foundation. The Tax Court rejected all of the foundation’s arguments that there were errors in the IRS's conduct of the taxpayer's collection due process (CDP) hearing. First, the Tax Court made clear that a private foundation which is not exempt from tax must comply with the same return filing requirements as organizations described in Code Sec. 501(c)(3) which are exempt from tax under Code Sec. 501(a). (Code Sec. 6033(d)) and that Code Sec. 6652(c)(1)(A) imposes a penalty for failing to file Form 990 in a timely manner.
Lesson learned #1: The Internal Revenue Service will impose penalties for failure to timely file returns on private foundations and the Tax Court will uphold these penalties.
Lesson learned #2: All taxpayers, even private foundations, should have proper advice and counsel of their filing obligations so these issues do not occur.