The court in Haynes declined to rule on whether the Supreme Court decision in United States v. Boyle, 469 US 241 (1985), applied to e-filing a tax return. The court instead remanded the case to resolve factual issues.
In Declining To Examine The Application Of Boyle,
The Decision Leaves In Place Uncertainty For Many Taxpayers Who E-File Their Returns.
To exacerbate this uncertainty or solidify the IRS' continue position that United States v. Boyle, 469 US 241 (1985), should be applied to not allow reasonable cause for taxpayers who rely on their accountant to e-file their return, unless they request proof of e-filing; the government notified the court that the IRS had refunded the late-filing penalty at issue, effectively mooting the case and leaving this issue unresolved.
Internal Revenue Code Section 6651(a)(1) excuses a taxpayer from penalties for failure to file a return on time if they show the failure was “due to reasonable cause and not due to willful neglect.”
In Boyle, an estate executor hired an experienced lawyer to prepare estate tax returns, but the lawyer failed to put the filing date on the calendar. Nevertheless, the court held that determining a deadline and meeting it did not require any special skills, and therefore relying on an agent was unreasonable. Accordingly, the Court in Boyle did not excuse late filing, and the taxpayer was subject to penalty.
How Boyle applies to e-filing original tax returns remains an open question; as Boyle was decided in 1985 when e-filing did not exist. In late February, the taxpayer in Haynes filed a petition for rehearing with the Fifth Circuit, specifically focusing on the application of Boyle.
However, during the week of March 4, 2019, the government notified the court that the IRS had refunded the late-filing penalty at issue, effectively mooting the case.
Thus, It Appears That Haynes Will Not Resolve
This Open Question For Now.
Contact the Tax Lawyers at
As reflected in the Boyle case, it is still the IRS's position that Boyle controls e-filing and failure of the taxpayer to request and obtain confirmation of e-filing, is negligence on behalf of the taxpayer, which voids the reasonable basis argument. Really?
A court tackling this issue in today’s e-commerce environment may likely come up with different reasoning on how “reasonable cause” should apply when an original return is e-filed. The Electronic Tax Administration Advisory Committee found 79.9 percent of major return types were filed electronically in 2017.
Over the last few years, the Internal Revenue Service (IRS) has required e-filing for an ever-increasing number of returns. Currently, all “specified return preparers” must e-file. This definition includes anyone who accepts compensation to prepare returns and expects to file more than 10 returns per year.
Taxpayers who use “specified return preparers,” i.e., almost any paid return preparer, must rely on the preparers to e-file their returns. Even those taxpayers who use over-the-counter software to file their own returns rely on intermediaries to transmit the return to the IRS. Taxpayers may face risks even if these intermediaries operate properly. To process returns, the IRS relies on some of the oldest computer systems in the federal government and this risk/reliance was illustrated in the 2018 system crash on the last day of filing season.
The Current State Of The Law Has Not Kept Pace With Our Digital Economy.
The Ever-Increasing Reliance On E-Filing Presents Numerous Questions That Are Not Adequately Addressed
In Cases Like Boyle.
At the center of this quandary is whether a taxpayer can have reasonable cause where he relies upon a third party to perform a ministerial act, like e-filing an original tax return. A negative response will thwart the efficiencies gained by technology. A positive response will usher in a whole host of proof issues surrounding how to show that the taxpayer reasonably relied on the third-party agent.
Even the Taxpayer Advocate has addressed this issue in its 2018 Annual Report to Congress:
"In
several cases, taxpayers argued they had reasonable cause for failure to file
their tax returns due to alleged malfunctions in their tax return electronic
filing software. The courts uniformly rejected this defense.45
In Spottiswood
v. United States, married taxpayers attempted to file their joint income tax
return electronically using TurboTax software.46 The IRS rejected taxpayers’ return because
the social security number and last name of a dependent on the return did not
match the IRS’s records.47
TurboTax
informed the taxpayers of the electronic filing rejection on or about the same
day that they filed the return. However, the taxpayers did not check the email
account associated with their TurboTax account, nor did they use the
"check e-file status" TurboTax screen to confirm the IRS had accepted
their return until many months later.48 As a result, the court held that the
taxpayers failed to establish reasonable cause for failing to file a return.49
Circumstances
suggesting reasonable cause are typically outside the taxpayer’s control.50 In Haynes v. United
States, taxpayers argued that the failure of the tax software to notify them
when the IRS rejected their return was a circumstance beyond their control.51 The court rejected
this argument, holding that "an alleged software failure does not rise to
the level of the Supreme Court’s definition of a circumstance beyond
Plaintiffs’ control—disability, infirmity, objective incapacity—in Boyle."52
Furthermore,
the court noted that taxpayers had the option of filing their tax return on
paper, electronically, or through any number of tax return preparers.53 The court was
careful in distinguishing cases in which reasonable cause may exist when
taxpayers rely on erroneous advice of counsel on a question of law.54
Accordingly,
while it may have been reasonable for the taxpayers to retain an expert
accountant to electronically file their return, their decision to do so does
not rise to reasonable cause for the abatement of late-filing penalties.
This case
had generated much interest in the tax practitioner community.55 On appeal, the Fifth
Circuit vacated the judgment and remanded the case back to the district court,
holding that it was not yet necessary to consider whether an exception to the
Boyle standard should be created for taxpayers who e-file.56”
____________________________
45 See, e.g., Spottiswood
v. U.S., 121 A.F.T.R.2d (RIA) 1595
(N.D. Cal. 2018), appeal
docketed, No. 18-16103 (9th Cir. June
14, 2018); Haynes
v. U.S., 119 A.F.T.R.2d (RIA) 2202
(W.D. Tex. 2017), vacated
and remanded, No. 17-50816 (5th Cir.
Jan. 29, 2019).
46 Spottiswood
v. U.S., 121 A.F.T.R.2d (RIA) 1595
(N.D. Cal. 2018), appeal
docketed, No. 18-16103 (9th Cir. June
14, 2018).
47 Id.
48 Id.
49 Id.
50 McMahan
v. Comm’r, 114 F.3d 366, 369 (2d Cir.
1997) (citation omitted), aff’g T.C. Memo. 1995–547.
51 Haynes
v. U.S., 119 A.F.T.R.2d (RIA) 2202
(W.D. Tex. 2017), vacated
and remanded, No. 17-50816 (5th Cir.
Jan. 29, 2019).
52 Haynes
v. U.S., 119 A.F.T.R.2d (RIA) 2202,
2017 U.S. Dist. LEXIS 106252, at *27-28 (W.D. Tex. 2017) (citing U.S.
v. Boyle, 469 U.S. 241, 250 (1985)), vacated
and remanded, No. 17-50816 (5th Cir.
Jan, 29, 2019).
53 Haynes
v. U.S., 119 A.F.T.R.2d (RIA) 2202
(W.D. Tex. 2017), vacated
and remanded, No. 17-50816 (5th Cir.
Jan. 29, 2019).
54 Id. 55 See http://procedurallytaxing.com/delinquency-penalties-boyle-in-the-age-of-e-filing/
(last visited Sept. 4, 2018). The American College of Tax Counsel has filed an amicus
brief in support of the taxpayers.
____________________________
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56 Haynes v. U.S., vacated and remanded, No. 17-50816 (5th Cir. Jan. 29, 2019).
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