Eleventh Circuit Holds Boyle Bright-Line Rule Applies to E-Filers

In its October 24, 2023 decision, Lee v. United States, the U.S. Court of Appeals for the Eleventh Circuit provided critical guidance to taxpayers who rely on their tax return preparers to e-file their tax returns.

The Supreme Court has previously held in no uncertain terms that taxpayers have a personal responsibility to ensure that their returns are timely mailed to the Internal Revenue Service, even if they enlist an agent to physically mail the return for them.¹ Until recently, however, it remained an open question as to whether taxpayers who authorize an agent to e-file their tax returns had the same non-delegable duty to ensure their return was timely filed as those who physically mailed their tax returns.²

It has become more important to address this question now, given Congress’s requirement in the Taxpayer First Act that certain returns be e-filed. In Lee, the Eleventh Circuit took the issue head on and firmly concluded that the non-delegable filing duties set forth in Boyle also apply to e-filed tax returns.

Penalties for Failure to Timely File

Taxpayers who fail to file a federal income tax return by the prescribed deadline can face stiff penalties. Taxpayers who fail to file may be assessed a penalty equal to 5% per month of the tax shown as due on the return, with the cumulative penalty capped at 25%. Such penalties may be waived (abated) if the taxpayer can demonstrate reasonable cause.³ Reasonable cause exists where taxpayers successful show that they exercised ordinary business care and prudence but were unable to meet their compliance obligations in a timely manner.⁴ Circumstances beyond a taxpayer’s control that result in a compliance error, such as postal delays and illness, can establish ordinary business care and prudence.⁵

What is the Boyle “Bright-Line” Rule?

In 1985, the Supreme Court in Boyle held that a taxpayer’s reliance on an agent to file a tax return does not amount to reasonable cause for purposes of granting abatement of penalties for failure to timely file said return. Despite engaging a CPA, providing the CPA with all relevant records, and checking the CPA’s progress, such actions were not a substitute for actually complying with the filing deadlines.

Per the Supreme Court, taxpayers have a non-delegable duty to ensure that their tax returns are timely mailed and received by the IRS, as “[i]t requires no special training or effort to ascertain a deadline and make sure that it is met.” Further, the Court found that timely filing was not beyond the taxpayer’s control. Accordingly, the Supreme Court held the taxpayer did not demonstrate reasonable cause for abatement of penalties for late filing.

Under this “bright-line” Boyle rule, taxpayers who rely on an advisor to physically file their paper returns do not qualify for reasonable cause relief simply because the advisor failed to timely file the return.

What Question Did Boyle Leave Open?

Obviously, the 1985 Boyle decision did not consider the implications of its holding on taxpayers subject to e-filing requirements that would be implemented decades later. As noted by the Eleventh Circuit in Lee, if the petitioner had failed to file paper tax returns there would be no question that Boyle would have precluded a reasonable cause defense.⁶  Consequently, the Eleventh Circuit in Lee framed the question before it generally as whether Boyle’s bright-line rule applies to e-filed returns.

What Was the Taxpayer’s Position in Lee?

In Lee, the taxpayer retained a CPA to prepare and e-file his tax returns for 2014, 2015, and 2016. The CPA failed to do so. Each year, the taxpayer received copies of his returns to review, each showing large overpayments that he chose to carry forward to subsequent years, and signed Form 8879, IRS E-File Signature Authorization, authorizing the CPA to e-file the reviewed returns.  The taxpayer was unaware that his returns were never filed because he was not expecting refunds and because IRS notices had gone to a prior address.      

The taxpayer made two primary arguments in his appeal to the Eleventh Circuit to support abatement of late filing penalties. First, he argued that Boyle did not apply because he signed Form 8879, authorizing the CPA to e-file the returns, and thus, the e-filing burden was shifted to the CPA. Second, the taxpayer argued that, regardless of the bright-line rule of Boyle, he demonstrated reasonable cause for the late filing.

How Did the Court Respond?

The Eleventh Circuit rejected the taxpayer’s argument that Boyle does not apply to e-filed returns. First, the court found that signing a Form 8879 did not relieve the taxpayer of his duty to supervise the return preparation and ensure the return has been submitted. The court found that a taxpayer’s reliance on their agent to e-file the return does not amount to circumstances “beyond the taxpayer’s control” like “postal delays and illness.”⁷  The fact that signing Form 8879 “left nothing else for him to do” did not materially distinguish Lee from the taxpayer in Boyle.⁸

The Eleventh Circuit summarily rejected taxpayer’s argument that, by requiring certain returns to be e-filed, Congress effectively shifted the e-filing burden to tax preparers.⁹  As the court noted, “[e]ven if, arguendo, the publication transposes the filing obligation to [electronic return originators], it cannot trump the Supreme Court’s holding that taxpayers have ‘an unambiguous, precisely defined duty to file’ timely tax returns."¹⁰

The Eleventh Circuit also rejected taxpayer’s argument that, regardless of Boyle, he demonstrated reasonable cause for filing late. The court conceded Lee’s position that Boyle permits consideration of certain circumstances beyond the taxpayer’s control.¹¹ However, it found that “complex tax situations and tortuous e-filing procedures are not disabilities that divest a taxpayer of the faculties needed for ordinary business care or prudence.”¹² Moreover, the court found that, ignoring Boyle, Lee still did not act reasonably because he never confirmed with his CPA or the IRS that his returns were actually filled.¹³

Ultimately, Lee highlights the importance of engaging trustworthy tax advisors to prepare and file tax returns. The decision makes it clear that even with the advent of e-filing, taxpayers must still maintain an active role in the review and filing of their tax returns.