ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – MY ACCOUNTANT TOLD ME MY RETURN WAS FILED; IT WASN’T – IS THIS REASONABLE CAUSE TO ABATE A LATE FILING PENALTY? THE FISHER CASE
By Robert S. Schriebman
Is it reasonable on the part of the taxpayer to rely on his/her accountant when it comes to filing a tax return? If your accountant tells you that your return has in fact been filed, does this constitute reasonable cause to abate a late filing penalty when you learn the truth? The accountant was wrong, and the return was not timely filed! This was the issue decided by the Office of Tax Appeals (OTA) in the Fisher Case. Before discussing the Fisher Case, it is important to review the US Supreme Court’s Boyle decision issued in 1985; Boyle vs US 469 U.S. 241.
In Boyle, the Court made a distinction between reliance on procedural matters versus reliance on substantive matters of tax law as establishing a standard for reasonable cause. The Court held that for mere procedural matters, such as the deadline for filing tax returns, reliance on professional advice is not considered reasonable cause because, as the Court stated, this “requires no special training or effort to ascertain a deadline and make sure that it is met.” However, reliance upon professional advice for substantive tax matters may very well constitute reasonable cause for abatement purposes.
Does the 1985 Boyle case still apply in modern times when tax returns are filed electronically?
The Fisher Case
The Matter of the Appeal of J. and M. Fisher, OTA Case No. 19105379
The Fishers hired an accounting firm to prepare and file their 2016 IRS and California income tax returns. They timely gave the accountant all relevant documentation and information. The accountant filed the returns electronically. The accountant told the Fishers that both their IRS and FTB returns were confirmed as filed. In truth the accountant received only the confirmation that the IRS return was filed, but there was no confirmation from the FTB.
In 2018, during an IRS audit of their 2016 return, the Fishers leaned for the first time, that the FTB return for 2016 was not filed. In April 2019, the Fishers filed their FTB return. The FTB assessed a late filing penalty of over $29,000. The FTB refused to abate the late filing penalty and the Fishers brought their case before the OTA. How did the OTA rule?
The OTA Decision
The Fishers argued that the late filing penalty should be abated because they exercised reasonable care in hiring an accountant to prepare and file their FTB return, and the accountant told them that their 2016 return had been filed electronically. The OTA was sympathetic to the Fishers’ situation but ruled against them. The fact that the Fishers relied upon their accountant to file their return does not relieve them of their responsibility to ensure that it was timely filed. The accountant’s failure to verify whether the return was filed, when no confirmation was received, does not constitute reasonable cause. Under the Boyle case it is common knowledge when a tax return is due. It does not take any specialize skill to know this. The Fishers should have personally verified whether the return was filed and had no right to rely on their accountant.
Does the 1985 Boyle case still apply in the age of electronic filing? The OTA cited the case of Intress v. U.S., an unreported decision from a Tennessee District Court that cannot be used as a precedent decision. That case held that the decision in Boyle was still applicable to electronic filing because “taxpayers are not obligated to use tax preparation services” and are “not required to use e-file software.”
The bottom line in the Fisher case is that a taxpayer’s reliance on an accountant or other agent to timely file a n electronic return did not establish reasonable cause for the late filing. The OTA stated that courts have not yet ruled on the direct application of Boyle in the current era of e-file returns. It is apparently safer for the OTA not to expand Boyle at the cost to the California State Treasury.
The Fisher case states that taxpayers are not obligated to use electronic filing. And until electronic filing becomes mandatory, the holding in Boyle still stands. It requires no special training or effort for a person to determine if a return was in fact filed. This diligence applies equally to a paper filed return as well as an e-file return. Is the accounting firm liable for the FTB penalty due to their negligence?
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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