In the case of Baer v. United States,[1] US Court of Federal Claims, Case No. 19-1439, an attorney argued that because he believed that his CPA had filed for an extension of time to file his personal income tax return, he should be granted reasonable cause relief from a failure to file penalty.  The Court denied the request, finding that, per the Supreme Court’s precedent in the Boyle case[2] the timely filing of the extension was a nondelegable duty of the taxpayer.

The case involved a taxpayer who had engaged a CPA to prepare his tax return.  Each year the taxpayer had not been ready to file by April 15, and therefore an extension of time to file the return was required to be requested.

The opinion provides the following history of this process of requesting an extension for each year:

The plaintiff hired his CPA to prepare his return for the 2009 tax year on behalf of him and his then-spouse, Cheryl Baer. (Id. ¶ 15.) The CPA mailed or e-filed a timely Extension Form 4868, which extended the time to file the plaintiff’s 2009 tax return from April 15, 2010, to October 15, 2010. (Id.) The 2009 extension form estimated the Baers’ tax liability at $173,873, reflected total payments of $141,873, and estimated a balance due of $32,000. (ECF 1-2, Compl. Ex. A.) The plaintiff filed his personal income-tax return on June 21, 2010, with the additional balance owing of $32,000, that the plaintiff did not pay in full at that time. (Compl. ¶ 16.) While originally assessed with a penalty for failure to file a timely return for tax year 2009, the IRS later abated the plaintiff’s penalty after determining that Extension Form 4868 had in fact been filed by the plaintiff’s CPA. (Id. ¶¶ 26-27.)

For the 2010 tax year, the plaintiff again relied on his CPA to file a timely Extension Form 4868. The filing of Extension Form 4868 on time would have permitted the plaintiff to file his return on or before October 15, 2011. On or about April 5, 2011, the plaintiff’s CPA prepared Extension Form 4868 and provided a copy to Mr. Baer (Mrs. Baer was not included due to the Baers’ 2010 divorce). (Id. ¶¶ 7, 24; Compl. Ex. B.) The draft Extension Form 4868 reflected an estimated federal tax liability of $10,000, no prior payments, and an estimated balance due of $10,000. (Compl. Ex. B.) For reasons not explained in the complaint, the plaintiff’s CPA neither mailed Extension Form 4868 for tax year 2010 to the IRS nor e-filed it, even though the plaintiff was under the impression that his CPA had done so. (Compl. ¶¶ 17-18.) The plaintiff filed his individual income-tax return for tax year 2010 on December 11, 2011, with a balance due of approximately $123,708; the plaintiff was unable to pay the balance due in full at the time he filed his return. (Id. ¶ 19.) The IRS assessed a late-filing penalty on the plaintiff for filing his return after April 15, 2011. (Id. ¶ 26.) The IRS subsequently abated the late-filing penalty for the 2010 tax year, after determining that the plaintiff qualified for the IRS’s first-time abatement policy, given his “good history of timely filing and timely paying” his individual income taxes. (Id. ¶ 28.)

For the 2011 tax year, the plaintiff again relied on his CPA to mail or e-file Extension Form 4868 on or before April 15, 2012, in order to allow him to file his timely return on or before October 15, 2012. On or about March 12, 2012, Mr. Baer’s CPA prepared Extension Form 4868 on his behalf. (Compl. Ex. C.) The Extension Form 4868 for the 2011 tax year reflected an estimated federal-tax liability of $130,000, no payments made, and an estimated balance due of $130,000. (Id.) The plaintiff received a fully completed extension form from his CPA and believed that his CPA had submitted the form to the IRS. (Compl. ¶¶ 24-25.) Unbeknownst to the plaintiff, however, and as in 2010, his CPA had not submitted to the IRS the completed Extension Form 4868 for the 2011 tax year. (Id. ¶ 20.)[3]

For the final year the IRS assessed the late filing penalty, and this time it was not waived when the taxpayer asked for relief.

I Thought My CPA Filed It

The taxpayer argues that he had a reasonable basis for his late filing since he believed the CPA had filed the extension.  However, the IRS disagreed, arguing a taxpayer could not delegate this duty to a third party since, as the Supreme Court had ruled in Boyle, it takes no special expertise in taxation to mail a document on or before April 15, or to be aware that action must be taken by that well-known date:

The defendant argues that under Boyle and this and other courts’ precedents, Mr. Baer had a non-delegable duty to file his tax return on time, even if he had had a reasonable belief that his CPA had filed a timely Extension Form 4868 on his behalf. In particular, the defendant notes the applicability of McMahan v. C.I.R., 114 F.3d 366 (2d. Cir. 1997). In McMahan, the plaintiff relied on his attorney’s assertion that an extension request had been filed on his behalf. Id. at 368-69. Nevertheless, the attorney erroneously failed to file the extension request, resulting in the imposition of a late-filing penalty on the taxpayer. Id. The Second Circuit rejected the taxpayer’s argument that he had reasonable cause for his failure to file a timely return based on his agent’s assurance that the agent would file the application for an extension. The Second Circuit specifically noted that “reliance on an agent for the ministerial task of filing a tax return by the statutory deadline does not constitute reasonable cause.” Id. at 369. Mr. Baer, the defendant argues, was fully aware of the unambiguous April 15 and October 15 deadlines based on his prior extension-form submissions. His use of an agent does not negate his personal responsibility for meeting the filing deadline.[4]

The taxpayer’s response was to say, yes that’s generally true but my case is different!

The plaintiff, in large part, concedes this point: he acknowledges that he is “not contending that his duty to file timely is delegable.” (ECF 19 at 2.) Nonetheless, the plaintiff argues that based on industry practice and the prior course of dealings between the plaintiff and his CPA, it was the “plaintiff's return preparer who would be the appropriate and expected individual to file the 2011 request for extension.” (Id. at 9.) Further, the plaintiff notes that Extension Form 4868 does not require the signature of the taxpayer. By not requiring the taxpayer's signature, unlike most other tax-related filings with the IRS, an agent may more easily file Extension Form 4868 on the taxpayer's behalf and without the taxpayer's involvement. The plaintiff suggests that this aspect of the form's design and industry custom create a reasonable expectation in taxpayers that their agents will file the form on their behalf and they may reasonably rely on that expectation to avoid late-filing penalties, even when the agent has failed to file the form.[5]

Unfortunately for the taxpayer, the Court failed to see any difference that matters in this case, even when dealing with a Form 4868:

Under Boyle, the Court is constrained to find that, despite hiring a CPA to complete and submit Extension Form 4868 on his behalf, Mr. Baer maintained a personal responsibility to request a deadline extension or to file a tax return on or before April 15, 2012. Even though he expected that his CPA would submit the form seeking an extension, his reliance on his CPA to do so cannot excuse him from complying with a non-delegable duty. The plaintiff therefore cannot escape the late-filing penalty, unless some other legal justification can save him.[6]

Failing to File the Form 4868 as Tax Advice?

While a taxpayer cannot get out from penalties by delegating the duty to file by April 15 to a tax professional, that’s generally because it takes no special expertise to mail a form.  But if the action is not taken due to erroneous tax advice provided by the adviser, then it can be a reasonable cause excuse for the failure.

However, in this case the taxpayer had to stretch a bit to find something to argue represented erroneous tax advice given to him by the CPA regarding the filing deadline.  Essentially, he argued that the CPA mistakenly believed that the balance due had to be paid with the Form 4868 and, for that reason had not filed the form.  He attempted to argue that this failure to file the form based on this mistaken belief of the CPA represented erroneous professional advice on which he had relied.

The taxpayer’s argument is summarized in the opinion as follows:

First, the plaintiff argues that his CPA’s conduct — i.e., not submitting Extension Form 4868 under the belief that the estimated balance due for tax year 2011 had to be paid in conjunction with the submission in order to be granted an extension — constitutes advice. The CPA’s action of sending the completed form to Mr. Baer without filing it first was, according to the plaintiff, advice itself. The complaint, however, does not allege that the plaintiff’s CPA provided legal advice on this issue. In fact, the plaintiff acknowledges in his brief that when the exchange between his CPA and him occurred, the plaintiff “did not have any conversation on the subject with his return preparer.” (ECF 19 at n.9.)

Second, the plaintiff argues that he relied on his CPA’s erroneous legal “advice.” The plaintiff cites a line of cases holding that when a taxpayer hires a competent tax expert and that tax expert provides mistaken advice, the taxpayer may have reasonable cause for a late filing due to reliance on the incorrect professional opinion. Here, Mr. Baer argues that the advice his CPA gave him in not filing Extension Form 4868 was erroneous; because, however, the plaintiff could reasonably rely on the advice as the professional opinion of a tax expert, he had reasonable cause for his late filing.[7]

However, the Court found neither argument persuasive.  First, it found that there never had been advice rendered to the taxpayer regarding the submission of the extension form:

The Court rejects the plaintiff’s first argument and agrees with the defendant’s position that the CPA’s failure to file the extension request due to a mistaken belief that payment must accompany the request did not constitute “advice.” The plaintiff and his CPA did not discuss the submission of the extension form: the plaintiff asked no questions, and the CPA provided no instructions. Had the plaintiff alleged such communication regarding whether payment had to accompany the request for additional time to file, such communication could have constituted legal advice.[8]

The Court also rejects the second argument, finding that even if the Court accepts that providing a Form 4868 to the taxpayer constituted advice, which the Court specifically did not find, that “advice” would not have been reasonable:

The Court also rejects the plaintiff’s second argument. Even if the CPA’s act of sending to Mr. Baer a copy of a completed Extension Form 4868 could be construed as the provision of tax advice by the CPA, that advice would not have been based on a “[ ]reasonable factual or legal assumption[ ],” Stobie Creek, supra, and the plaintiff’s reliance on it would not be reasonable.

In 2009, when the plaintiff’s CPA correctly submitted Extension Form 4868 for him, the form instructed taxpayers to submit a payment along with the request “if you wish.” (Compl. Ex. A.)1 On its face, the form suggested that payment in conjunction with the extension request was optional. The 2010 and 2011 versions of the form were slightly revised and explicitly instructed taxpayers that they were “not required to make a payment of the tax you estimate as due.” (Compl. Ex. B, C.)

The plaintiff’s CPA, having completed the form on Mr. Baer’s behalf all three years, would have been aware via the form’s explicit text that no payment was required to submit Extension Form 4868 and receive the automatic extension of the filing deadline. The wording of Extension Form 4868’s instructions, located on the same page on which the CPA filled in Mr. Baer’s personal information, provides clear notice to filers that no payment is necessary at that time. The provision on the face of the form of an explicit instruction regarding the ability to file for an extension of the filing deadline without payment renders any belief to the contrary unreasonable. Therefore, even accepting, as the Court must, the complaint’s allegation that Mr. Baer’s CPA made an erroneous legal assumption about the requirement that payment accompany the filing of Extension Form 4868, such an assumption was not reasonable and cannot excuse the plaintiff’s failure to perform his non-delegable duty.[9]

This part of the ruling may seem harsh—after all, how would a taxpayer recognize the advice was unreasonable?  Well, first the Court would likely point out that the form itself for the year in question said, rather plainly, that such a payment was not necessary. 

But likely more important is the fact that Mr. Baer was an attorney.  He presumably would have read the form that was provided to him and would have noted that statement—one that would have put him on notice that the CPA’s advice was in error.

Actually, in this case it’s very possible (perhaps even likely given that he is an attorney) that Mr. Baer did read that form, which would be part of the reason why he would assume the form had been provided to him solely for informational purposes.  He had presumed that the CPA would have filed the form on his behalf because such a payment was not necessary with the form.  But this was all based on his assumptions, not anything ever actually discussed with the CPA.

[1] Baer v. United States, US Court of Federal Claims, Case No. 19-1439, November 5, 2020, https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2019cv1439-21-0 (retrieved November 7, 2020)§

[2] United States v. Boyle, 469 U.S. 241 (1985)

[3] Baer v. United States, pp. 3-4

[4] Baer v. United States, p. 7

[5] Baer v. United States, p. 7

[6] Baer v. United States, p. 7

[7] Baer v. United States, pp. 8-9

[8] Baer v. United States, p. 9

[9] Baer v. United States, p. 9