If you hire a professional to file your return and they miss the deadline, whose fault is it? Most people think the answer is obvious. In United States v. Boyle, the Supreme Court said the obvious answer is wrong, at least as far as the IRS is concerned.
The Facts
Robert W. Boyle was named executor of his mother's estate after she died on September 14, 1978. He hired attorney Ronald Keyser to represent the estate. Keyser told him the estate had to file a federal estate tax return but did not mention the deadline. Under the Code, the return was due within nine months of death, by June 14, 1979.
Boyle was a businessman but not experienced in estate tax. He relied on Keyser, cooperated fully and provided all the information requested. He and his wife checked in with Keyser several times that spring and summer and were assured the return would be filed "in plenty of time." When Boyle called on September 6, 1979, he learned the return was already overdue. Keyser had omitted the filing date from his master calendar. The return was filed September 13, three months late.
The IRS assessed a late-filing addition to tax under IRC § 6651(a)(1) of $17,124.45, plus $1,326.56 in interest. Boyle paid, claimed a refund, and sued. The District Court ruled for him under a Seventh Circuit precedent that treated reliance on counsel as reasonable cause in some circumstances, and a divided Seventh Circuit affirmed. Other circuits disagreed, so the Supreme Court took the case.
The Issue
Is a taxpayer's reliance on an attorney to prepare and file a return "reasonable cause" that excuses the late-filing penalty?
The Holding
No. Chief Justice Burger wrote for the Court: "The failure to make a timely filing of a tax return is not excused by the taxpayer's reliance on an agent, and such reliance is not 'reasonable cause' for a late filing under § 6651(a)(1)." The Court reversed.
The Reasoning
What willful neglect means
The Court defined the other half of the test along the way. "Willful neglect," it said, "may be read as meaning a conscious, intentional failure or reckless indifference." Reasonable cause, by contrast, is about the absence of carelessness. The Court explained that Congress intended absence of fault to be a prerequisite to avoiding the penalty, so a taxpayer must show the late filing was the result neither of carelessness, reckless indifference nor intentional failure.
Two hurdles
Section 6651(a)(1) imposes the penalty "unless it is shown that such failure is due to reasonable cause and not due to willful neglect." The taxpayer must prove both. The IRS did not claim Boyle was willful. The question was reasonable cause, which the regulation defines as exercising "ordinary business care and prudence" and nevertheless being "unable to file the return within the prescribed time."
A bright line
The Court said it was time "for a rule with as 'bright' a line as can be drawn." It explained that "[d]eadlines are inherently arbitrary; fixed dates, however, are often essential to accomplish necessary results," and that a self-assessment system with millions of taxpayers "simply cannot work on any basis other than one of strict filing standards."
The duty belongs to the taxpayer
Hiring a lawyer was ordinary business care. But "[t]hat 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." Whether it was reasonable to trust the lawyer might matter between Boyle and Keyser. It did not matter to the IRS.
Advice versus errands
The Court drew the line that still governs penalty cases. When an attorney or accountant advises a taxpayer on a substantive question of tax law, such as whether a return is required at all, it is reasonable to rely on that advice. Most taxpayers cannot spot errors in professional tax advice, and requiring them to second-guess it "would nullify the very purpose of seeking the advice." But knowing a return has a due date requires no special skill. In the Court's words, "tax returns imply deadlines," and "[i]t requires no special training or effort to ascertain a deadline and make sure that it is met."
What the IRS itself counted as reasonable cause
In a footnote, the Court listed the reasons the IRS's own manual at the time treated as reasonable cause for late filing: unavoidable postal delays, timely filing with the wrong IRS office, reliance on erroneous advice from an IRS employee, death or serious illness of the taxpayer or an immediate family member, the taxpayer's unavoidable absence, destruction of records or the place of business by casualty, the IRS's failure to furnish necessary forms in time, and an IRS representative's inability to meet with a taxpayer who made a timely visit for help. Every one of those reasons is about something outside the taxpayer's control. An adviser's calendaring mistake is not on the list.
A concurrence worth noting
Justice Brennan wrote a separate concurrence. The judgment, however, was the Court's: reliance on an agent for a filing deadline is not reasonable cause, and that is the rule courts have applied ever since.
Extensions were available
The Court also observed that extensions of time to file are "granted fairly routinely." Boyle did not need to file on his own. He needed to know when the return was due and make sure it was filed or extended.
What It Means for Taxpayers Today
Know your own due dates
You can hire someone to prepare and file your returns. You cannot hire away the deadline. Put the due dates on your own calendar, ask for confirmation that the return was filed or extended, and keep the proof. If you are an executor, trustee or business owner, this applies with extra force, because the returns and the penalties can be large.
The penalty math is real
The late-filing addition under § 6651(a)(1) is 5 percent of the net tax required to be shown for each month or partial month the return is late, up to 25 percent. For an income tax return more than 60 days late, a minimum penalty applies under the flush language of § 6651(a): the lesser of an inflation-adjusted dollar amount or 100 percent of the tax required to be shown. A fraudulent failure to file raises the rate to 15 percent per month and the cap to 75 percent under § 6651(f).
When reliance does work
Boyle left room for one kind of reliance. If a qualified adviser told you, after reviewing the facts, that you did not need to file a particular return or that a position was correct, reasonable reliance on that advice can establish reasonable cause. The details of that defense for accuracy-related penalties are the subject of Neonatology Associates v. Commissioner.
Other doors to penalty relief
The regulation's "ordinary business care and prudence" test still allows relief for genuine causes beyond your control, such as serious illness or casualty. The IRS's penalty relief procedures are set out in the Internal Revenue Manual at IRM 20.1.1. Our article on penalty abatement strategies covers the practical options. Just do not build the request around "my accountant forgot." After Boyle, that argument loses.
The Bottom Line
Boyle did nothing a reasonable person would call careless, and he still paid. That is the point of the case. The Supreme Court chose a bright line over fairness in individual cases, and it has held for four decades. Delegate the work if you like. Keep the deadline.