The Tax Court found that a taxpayer did not reasonably rely on a CPA retained to timely file his tax return in the case of Padda v. Commissioner, TC Memo 2020-154.[1] This was true even though the CPA submitted the return seconds after the clock ticked past midnight on October 15, 2013.

The Court described the events leading to the late filing of the taxpayers’ return as follows:

Padda and Kane’s 2012 federal individual income tax return was due October 15, 2013. On October 15, 2013, Padda and Kane signed IRS Form 8879, “IRS e-file Signature Authorization” to authorize Ehrenreich’s accounting firm to electronically file their 2012 Form 1040, “U.S. Individual Income Tax Return”. On October 15, 2013, Ehrenreich’s accounting firm was electronically filing several tax returns just before midnight. Ehrenreich’s accounting firm created an electronic version of Padda and Kane’s return on October 15, 2013, at 11:59 p.m. It transmitted the electronic version to the IRS on October 16, 2013, at 12 a.m. On October 16, 2013, the IRS rejected the return as a duplicate submission. Ehrenreich’s accounting firm electronically resent the return on October 25, 2013, and it was received and accepted by the IRS the same day.[2]

At trial, the taxpayer and the IRS stipulated that the return was filed on October 25, 2013. The taxpayers claimed that they shouldn’t be held responsible for the late filing because the CPA firm was responsible for the late submission.[3]

We’ve before discussed the general rule that a taxpayer cannot rely upon the actions of a third party for timely filing,[4] but rather must demonstrate that the taxpayer exercised reasonable care and prudence but was unable to timely file.[5]

The taxpayers described their actions as follows:

Padda and Kane argue that the reason that their 2012 return was filed late was that (1) Ehrenreich’s accounting firm pressed a button only a few seconds late, (2) they relied on Ehrenreich’s accounting firm to timely file the return, and (3) they themselves could not have pressed the button to timely file the return.[6]

The Tax Court rejected their defense, both because ultimately they were attempting to delegate timely filing to a third party, but also because even if that was allowed it would have been unreasonable to have relied on the firm to file timely in this case based on their previous experience with this accounting firm:

Even if sometimes it might be reasonable for a taxpayer to rely on his or her accountant to timely file his or her returns (contrary to the caselaw), it was not reasonable in this particular case for Padda and Kane to rely on Ehrenreich’s firm to timely file their return. Padda and Kane have relied on Ehrenreich’s firm to file their returns every year since at least 2006. And every year since then, except for 2011, their return was filed late. Yet they have continued to use Ehrenreich’s firm to file their return year after year. Padda and Kane’s failure to ensure that Ehrenreich’s firm timely filed their 2012 return demonstrates a lack of ordinary business care, particularly in the light of the firm’s history of delinquent filings.[7]

[1] Padda v. Commissioner, TC Memo 2020-154, November 16, 2020, https://www.ustaxcourt.gov/UstcInOp2/OpinionViewer.aspx?ID=12359, (retrieved November 17, 2020)

[2] Padda v. Commissioner, TC Memo 2020-154, pp.8-9

[3] Padda v. Commissioner, TC Memo 2020-154, p. 22

[4] United States v. Boyle, 469 US 241 (1985)

[5] Reg. §301.6651-1

[6] Padda v. Commissioner, TC Memo 2020-154, pp. 22-23

[7] Padda v. Commissioner, TC Memo 2020-154, p. 23