United States' Motion to Exclude Expert Testimony of Plaintiffs'

The background for the rules allowing reliance on advice of counsel in all of theasserted penalties is the 1985 Supreme Court decision in Boyle, which interpreted thepenalty provisions under prior law. (The provisions were reorganized and rationalizedin 1989, but the relevant substantive rules allowing reliance on tax advice remainsubstantially the same.) In that case, the taxpayer filed a late return because of a clericalerror by his tax counseL. The IRS asserted penalties for late filng, and the taxpayer, Mr.Boyle, objected relying on a reasonable cause exception. While the Court held thatBoyle could not reasonably rely on counsel for failure to fie a timely return, in othercases reliance on counsel would be plainly reasonable. The Court held:When an accountant or attorney advises a taxpayer on a matter of tax law, such aswhether a liabilty exists, it is reasonable for the taxpayer to rely on that advice.Most taxpayers are not competent to discern error in the substantive advice of anaccountant or attorney. To require the taxpayer to challenge the attorney, to seeka "second opinion," or to try to monitor counsel on the provisions of the Codehimself would nullfy the very purpose of seeking the advice of a presumedexpert in the first place.469 U.S. 241, 252 (1985).The Supreme Court's rule allowing taxpayers to rely on professional tax adviceto avoid penalties makes sense. It is not practical to expect all, most, or even very manytaxpayers to be schooled in the various arcane details of the law. Instead, we encouragespecialization of this knowledge in tax professionals and allow others to rely on thisspecialization. The rules attempt to ensure that reliance on such specialized advice isreasonable, that there are no warning signs that a non-expert should be expected tonotice. But in the absence of warning signs, taxpayers exercising ordinary caseroutinely and reasonably rely on the advice of tax experts.Based on this reasoning, each of the asserted penalties allows taxpayers to avoidthe penalty based on reasonable reliance on the advice of tax experts. The particularstandards for reliance vary for each of the penalties based on the reasons for theimposition of the particular penalty.1. Negligence.4