Revisiting United States v. Boyle in the e-file era
The IRS consistently takes the position that taxpayers have a nondelegable duty to file their tax returns. While taxpayers can rely upon tax professionals for substantive tax advice, taxpayers could not historically rely upon tax professionals to physically file tax returns.
In 1985, the Supreme Court adopted this principle when it issued United States v. Boyle (469 US 241 (1985)). In Boyle, late-filing penalties were upheld against a taxpayer that relied upon a tax professional to mail that taxpayer’s tax return. In 2011, the Department of the Treasury issued regulations that require tax return preparers who reasonably expect to prepare 11 or more returns in one calendar year to electronically file all tax returns (section 6011(e)(3)). These e-file regulations force taxpayers with sufficiently complex tax returns to rely upon tax professionals to electronically file their tax returns. In effect, taxpayers that engage tax professionals’ assistance must now delegate their filing duty. Because many tax returns must now be electronically filed, the precedential weight of Boyle is in question.
In Boyle, the executor of an estate delegated the executor’s tax-filing obligation to an attorney. The executor made numerous inquiries to the attorney regarding tax return preparation, and the attorney assured the executor that the return would be timely filed. Unfortunately, the attorney failed to do so because of an inadvertent clerical error. The estate argued its reliance on the attorney constituted reasonable cause, sufficient to abate all late-filing penalties. The Supreme Court upheld late-filing penalties and stated, “Although it is common practice for an executor to engage a professional to prepare and file an estate tax return, a person experienced in business matters can perform that task personally.” Because the executor could have mailed the tax return himself, the late-filing penalties were upheld.
The IRS cites Boyle for the proposition that taxpayers can never delegate their tax return filing requirements. A broader interpretation of Boyle, however, is the proposition that taxpayers cannot rely upon tax professionals for actions that a taxpayer could accomplish personally and without any knowledge about tax law. In 1985, taxpayers could travel to the post office and mail their tax returns. No professional experience was required to do so. In 2015, however, taxpayers that engage tax professionals to prepare their tax returns must electronically file their tax returns due to the IRS’s e-file regulations. Due to this change in circumstances, what constitutes reasonable cause for purposes of late-filing penalties has arguably changed.
Assuming taxpayers can now delegate their filing obligations, taxpayers must still exercise ordinary business care and prudence to ensure tax obligations are met. What constitutes ordinary care and prudence in the e-file world has not yet been established. Taxpayers should not strictly rely upon their tax professionals with no oversight. Instead, taxpayers should take reasonable measures to ensure tax returns and extensions are timely filed. Reasonable measures include signed engagement letters prior to the tax return due date, e-mail or other correspondence from tax professionals with assurance that filing obligations will be met, and copies of e-file authorization forms and extensions. Even with all of these documents and assurances, taxpayers cannot be certain all electronic filing obligations are timely. One option is for taxpayers to request e-file receipts from their tax professionals. While this might be a best practice, there is no law that says taxpayers must do so to establish reasonable cause.
Thirty years after its issuance, the Boyle decision remains good law. However, Boyle should be reinterpreted in light of the e-file era. In 1985, a reasonable taxpayer should physically mail a tax return. In 2015, a reasonable taxpayer should obtain sufficient assurance from tax professionals that e-file obligations have been met. If tax professionals give assurance but fail to e-file, then a taxpayer arguably has reasonable cause. The IRS’s position remains that taxpayers have a nondelegable duty to file. Until courts have a chance to revisit Boyle in a modern context, taxpayers with late-filing penalties should consider a hazards-of-litigation settlement at IRS Appeals.
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