Taxpayers should always file their tax return on or before the due date and confirm with their tax return preparer that the return was timely filed. This means obtaining a copy of the electronic receipt that the accountant received after filing the return. Many taxpayers fail to do this and assume that the accountant timely filed the return. If, however, for some unexpected reason, the return was not timely filed (e.g., the return preparer mistakenly failed to transmit the return, or the IRS never received the return), the taxpayer may be faced with a late filing penalty. The amount of the penalty can be substantial (up to 25 percent of the amount required to be shown as tax on the return). IRC § 6651(a)(1)
A taxpayer is liable for a civil penalty for failing to timely file or pay “unless it’s shown that such failure is due to reasonable cause and not willful neglect . . ..” IRC § 6651(a)(1), (2). A Treasury Regulation provides that, to demonstrate “reasonable cause,” a taxpayer filing a late return must show that he “exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time.” Treas. Reg. § 301.6651-1(c)(1).
Reliance on Accountant
Is a taxpayer’s reliance on a tax return preparer to file his or her tax return “reasonable cause” under section 6651 to avoid a late-filing penalty? The leading case interpreting the terms of “reasonable cause and “willful neglect” in section 6651(a) is United States v. Boyle, 469 U.S. 241 (1985). There, Robert Boyle was the appointed executor of his mother’s will, and Boyle retained an attorney to file the estate tax return. The attorney overlooked the matter and filed the return late. The issue was whether Boyle’s reliance on his attorney was “reasonable cause” for failure to meet the deadline.” Id. at 247. The Supreme Court held that the estate executor was not relieved of his duty because the attorney, as the executor’s agent, was expected to attend to the matter. The Court reasoned, in part:
Congress has placed the burden of prompt filing on the executor, not on some agent or employee of the executor. * * * That the attorney, as the executor’s agent, was expected to attend to the matter does not relieve the principal of his duty to comply with the statute. * * * Id. at 249-250.
Boyle involving the paper filing of a tax return. But is Boyle still good law in the age of e-filing, most taxpayers electronically file their tax returns using third-party software programs. For example, what if the accountant inadvertently fails to hit the send button and the tax return is not timely transmitted to the IRS? Alternatively, what if the accountant timely transmitted the return, but the IRS never received it? The answer to this question is not entirely clear. See Haynes v. United States, 760 F. App’x 324, 326 (5th Cir. 2019) (court found it unnecessary to decide whether a broad e-filing exception to Boyle exists, as there was a genuine issue of material fact over whether accountant’s actions could meet reasonable-cause standard); but see Intress v. United States 404 F. Supp. 3d 1174 (M.D.Tenn. 2019) (reliance on a third-party tax preparer to timely file their tax return was not ‘reasonable cause’ under Boyle).
For taxpayers preparing and filing tax returns using TurboTax, the software program generates a confirmation reports, which taxpayers should maintain in their records. For taxpayers using an accountant, ask for a written confirmation that the return was timely transmitted to the IRS, even if this is not the practice of the accountant to provide a copy. Remember, to avoid a late-filing penalty, a taxpayer must exercise “ordinary business care and prudence”, and this means not blindly taking the return preparer’s word that the tax return was timely filed.
Finally, if the IRS has assessed a late-filing penalty, it may be wise to consult with competent tax counsel, would have review the facts of the case and formulate a defensible position. A taxpayer may be able to file a request for abatement of the penalty for reasonable cause, and if the IRS denies their request, seek a refund under section 6651(a)(1).