Boyle and the AWOL Return Preparer: No Excuse for Late Filing

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A recent case out of the Northern District of California, Willett v United States, illustrates the difficulty taxpayers face when trying to base a reasonable cause defense to the late filing of tax returns on the conduct of their return preparer.

I will summarize the facts and the court’s analysis.

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The Willetts had filed an extension for the 2014 year. In August of 2015, they delivered their K-1s, W-2s and 1099’s to their longtime preparer, who was a CPA. After dropping off the documents, for about three months their preparer did not respond to their phone calls. In October, the preparer contacted the Willets and told them that she had been seriously ill, would prepare the returns upon her release from an extended care facility, and would pay any penalties and interest associated with the late filing.

After another month or so of not hearing from the accountant, in November Mrs. Willett visited her preparer’s house to get an update. The preparer assured Mrs. Willett that she would complete the return. Unfortunately, despite the Willetts’ repeated efforts to contact her, that was the last that time that they heard from her (she in fact passed away in early 2017).  

The Willetts alleged that by December of 2015 they actively sought a replacement but were unable to get someone until June of 2016 due to other preparers claiming that (1) they were too busy or (2) the return was too complex. By June of 2016, they found someone and hired another CPA, and they filed the return in September of 2016. 

When the Willetts filed the delinquent return, IRS assessed over $34,000 and $6,000 of late filing and late payment penalties. The Willetts paid the penalties and filed a timely refund claim, alleging that their late filing should be excused based on their reasonably relying on their longtime accountant to prepare and file the returns on their behalf.  The IRS rejected the claim, and the Willetts filed suit in federal court. 

In response to the complaint, the government filed a motion to dismiss based on Boyle.  In response to the motion to dismiss, the Willetts amended their complaint and included even greater detail about the efforts they made to contact their longtime preparer after they dropped their tax documents off in August of 2016.   

The additional facts did not help: 

The Willetts’ allegations do not sufficiently plead reasonable cause entitling them to a refund for the late-filing penalties. Their allegations illustrate that they relied on their CPA, Ms. Goode, who possessed the original copies of their tax documents, became seriously ill, and was unable to complete their 2014 tax return on time.  In their Amended Complaint, the Willetts attempt to salvage their claims by providing a detailed timeline of the failed attempts to contact Ms. Goode. However, this timeline fails to demonstrate ordinary care, because it merely illustrates the numerous attempts to contact Ms. Goode.  But those allegations plead no excuse for the late-filing other than reliance on the Willetts’ agent, which is not “reasonable cause” under Boyle.

The Willett opinion does not break new ground. It refers to a couple of cases where the Tax Court held that a nonresponsive or ill accountant does not constitute reasonable cause for late filing. 

It also distinguishes Conklin Brothers of Santa Rosa, a post Boyle 1993 Ninth Circuit case which “held, in the case of a corporate-taxpayer, that reliance on an agent can establish reasonable cause if the taxpayer shows that “it was disabled from complying timely”—e.g., where its agent’s conduct was beyond the taxpayer’s control or supervision.” In distinguishing Conklin the opinion notes  (unpersuasively) that no court has extended it to individuals. More persuasively, the opinion explains that even if Conklin’s limited exception did apply to individuals, the facts as alleged did not support a finding that the Willetts were disabled from complying with their filing responsibilities:

The Willetts seem to imply that Ms. Goode’s possession of the original tax documents “disabled” them from filing their taxes themselves, and prevented them from hiring another CPA. They allege that they made attempts to contact other CPAs, and that those other CPAs would not take them as clients. The insufficiency of these allegations is apparent when compared to other cases holding that the disability exception did not apply. In Conklin, the agent in charge of Conklin’s tax obligations, the corporation’s controller, failed to timely file Conklin’s returns.  For over two years the controller also “intercepted and screened the mail,” “altered check descriptions and the quarterly reports,” and “concealed the deficiencies by undertaking the performance herself of all payroll functions.”  Although the controller’s concealment meant that Conklin’s officers were not aware of the IRS’s penalty assessments, the Ninth Circuit held that the controller’s “intentional misconduct” was not enough to establish that Conklin was disabled from timely complying.  The Willetts’ allegations do not suggest that their agent’s misbehavior was remotely comparable to the controller’s misconduct in Conklin.

(emphasis added; citations omitted)

Conclusion

Willett is a reminder that Boyle generally will prevent a reliance defense in the context of missing a return filing deadline. While there are grounds to challenge Boyle in the context of e-filing (as we have discussed before), Boyle casts a long shadow over taxpayers seeking to escape the hefty civil penalties for late filing. While the Willetts were mightily inconvenienced by their preparer’s failure to prepare the returns and the absence of their K-1s, W-2s and 1099s, the circumstances did not excuse the tardy filing.

As Willett demonstrates, the responsibility to file rests on the taxpayer. One of the barriers that the Willetts faced was that their old preparer had their tax information returns. To be sure the government could make it easier for taxpayers to comply by, for example, seamlessly providing taxpayers access to all information returns they receive from third parties. Last summer, I signed up for an online tax account from the IRS-one of its virtues is that by the time I got around to filing last October I was able to see in one spot the information returns that the IRS had on record for my 2018 year. Of course, most financial institutions and many employers provide access to the information returns if a taxpayer no longer has the original. At some point I suspect that the IRS will make a central portal more readily available for all taxpayers, thereby reducing the burdens of compiling (or retrieving) the returns that are necessary to file.

Leslie Book About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Comments

  1. Bob Kamman says

    The Willetts were not penalized for filing their return late. They were penalized $34,000 for filing their return late and owing about $170,000 in 2014 taxes that were not paid until September 2016. It probably was not the first time they had filed late and owed money, because they could have used their one-time “get out of penalty” card from IRS otherwise.

    Was it reasonable to rely on an 82-year-old tax preparer? Well, there are men who want to be President at that age. However, her illness when they finally got their stuff to her in August 2015 should have inspired them to act sooner.

    Filing tax returns is a low priority for many people. If they are allowed to make excuses, it discourages those for whom it is a high priority. The happy medium is for procrastinators to overpay in April with their extension requests. They can always apply the refund to the following year’s estimated tax.

  2. Sandy Boxerman says

    maybe the taxpayer in Willett should appeal this case up to and including asking the supreme Court for cert. for the purposes of considering whether Boyle should be overruled

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