S corporation's TMP personally responsible for sec. 6673 penalty.

• Author: Fiore, Nicholas J.

F was the tax matters person (TMP) for the R Company, an S corporation. For its 1986 tax year, the IRS disallowed a deduction claimed on contracted services. F filed a timely petition for readjustment, asserting that he would substantiate the deduction. F never provided any substantiation, never responded to the Service's requests for conferences, failed to submit a trial memorandum and failed to appear at trial. He also failed to provide any explanations or reasons for his in-actions.

The IRS moved to impose a Sec. 6673 penalty on F; he did not respond to this motion. The Tax Court (opinion Beghe, J.) holds that the penalty should be imposed on F, as TMP, rather than on R or on all R's shareholders.

Sec. 6673(a) authorizes the court to impose a penalty against "the taxpayer," not in excess of $25,000, when the court believes the proceedings were instituted or maintained primarily for delay, petitioner's position was frivolous or groundless, or petitioner unreasonably failed to pursue available administrative remedies.

F has displayed a complete lack of interest in presenting his case and has repeatedly ignored the IRS's requests for substantiation of the claimed deduction. We therefore conclude that R initiated this proceeding primarily for delay and has unreasonably failed to pursue available administrative remedies. Under these circumstances, it is appropriate to impose a penalty pursuant to Sec. 6673.

We have never imposed a penalty pursuant to Sec. 6673 on a TMP challenging a final S corporation administrative adjustment. The question is whether a penalty can be imposed in such a proceeding and, if so, whether the S corporation, the TMP or each of the shareholders is liable. Sec. 6673(a) provides that "the Tax Court, in its decision, may require the taxpayer...