March 3, 2022 10:58 pm

Reliance on Return Preparer Doesn’t Excuse Late Filing and Late Payment Penalties

If you fail to submit your return on time—by the due date or the extended due date if you request an extension—you are subject to a late filing penalty. And if you fail to pay the taxes due by the due date of the return, regardless of whether an extension is obtained, there’s a late payment penalty. However, both penalties may be waived if there is reasonable cause of the failures.

A recent district court case (Wayne Lee, DC-FL, 2/8/22) made it clear that relying on a tax return preparer is no excuse when it comes to these penalties. In the case, the individual filed a refund claim to recoup penalties paid for late filing and late payment related to his returns for 2014, 2015, and 2016, totaling more than $78,000. He signed Form 8879, which authorized a tax return preparer to e-file his returns. He argued that this demonstrated he exercised reasonable business care and prudence, the standard for reasonable cause relief. But even if he signed the form, the returns weren’t filed and the court denied him relief. In the words of the U.S. Supreme Court in a 1985 decision: a taxpayer’s “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 the last filing penalty.”

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Tax Glossary

Passive activity loss rules

Rules that limit the deduction of losses from passive activities to income from other passive activities. Passive activities include investment rental operations or businesses in which you do not materially participate.

More terms