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Still No Answer on Late Filing Penalty on Electronically Filed Tax Returns

By Joel N. Crouch on February 4, 2019

In a blog post last year (HERE), we discussed the parties’ oral arguments in the 5th Circuit Court of Appeal hearing in Haynes v. United States regarding the application of reasonable cause and a late filing penalty to an electronically filed tax return. On January 29th, the 5th Circuit issued an opinion in Haynes vacating the district court’s grant of the government’s motion for summary judgment and remanded the case to the district court for additional consideration.  However, in vacating the lower court decision, the 5th Circuit declined to address the question of whether the U.S. Supreme Court decision in U.S. v. Boyle is still valid law in the age of electronic filing of tax returns.

In Haynes, a CPA transmitted the taxpayers’ 2010 Form 1040 for electronic filing on the last day for filing.  The CPA did not receive confirmation of acceptance from the IRS, but he notified the taxpayer that 2010 tax return had been timely filed.  Ten months later, in August 2012, the taxpayers received an overdue-return notice from the IRS for the 2010 tax return. Upon further inquiry, it was determined that although the tax return had been timely transmitted to the IRS, the tax return had been rejected because Mrs. Haynes’ Social Security Number erroneously appeared on the line designated for an Employer Identification Number.  Neither the CPA nor the taxpayers received a rejection notice from the IRS prior to the August 2012 notice.

Upon receipt of the August 2012 IRS notice, the taxpayers immediately filed a paper tax return and the IRS assessed a late filing penalty which the taxpayers paid. After their claim for refund was denied by the IRS, the taxpayers filed suit in federal district court. The district court, citing Boyle, granted the government’s motion for summary judgement and said the taxpayers’ reliance on their tax professional was not a “reasonable cause” for late filing because the use of a tax professional did not relieve the taxpayer of a duty to meet a deadline.  The taxpayer appealed the district court’s decision.

In its January 29th opinion, the 5th Circuit said:

While the e-filing issue is an interesting one, it is one that we need not decide today. Even if the Government is right that Boyle should apply to e-filing, another genuine dispute of material fact … still defeats summary judgment. Consequently, we take no position on whether a taxpayer's reliance on a CPA to e-file a tax return, by itself, constitutes reasonable cause.

Whether it was reasonable for [the CPA] to assume, based on the IRS's silence, that it had accepted the [taxpayers’] return or whether ordinary business care and prudence would demand that he personally contact the IRS to ensure acceptance is a genuine question of material fact for the jury to decide. Because [the CPA] is the [taxpayers’] agent, if a jury determines that his actions meet the reasonable-cause standard, it must find the same to be true for the [taxpayers] — barring any determination of independent negligence by them. After all, principals are not only bound by their agents' failures, as in Boyle, but also by their diligence.

It appears the courts have successfully side stepped the late filed electronic return for now.

For any questions on this or any other tax-related matter, please feel free to contact Joel Crouch at (214) 749-2456 or jcrouch@meadowscollier.com