Crisanti v. R., [1996] 2 CTC 2603 (Informal Procedure)

Rowe J.T.C.C.: — The appellant was assessed a late filing penalty in respect of his 1993 income tax return and appealed on the basis that he had utilized the services of an agent and had done everything possible to ensure that the return was filed electronically prior to the deadline.

Deborah Rougeaux testified that she is a Certified Management Accountant, having obtained that certification while employed with Revenue Canada where she worked as a senior auditor in the Appeals section. At present, she and her husband own a tax preparation business and, in 1993, they did electronic filing of tax returns, commonly known as E-filing. The process involves the use of certain software to prepare tax returns and she and her husband had a contract with a business organization that transmitted their clients’ tax returns to Revenue Canada. She identified a booklet, entitled Electronic Filing - 1993 EFile Applicant’s Kit (Exhibit A-1). As outlined in the booklet, there are individuals who are tax preparers and others who are transmitters of tax returns to Revenue Canada. A Transmission Status Report - Exhibit A-2 - was referred to by her in the course of explaining the method of identifying the source of a particular transmission, together with the time, date, document control number and the name of the taxpayer. Included in the document was an example of error codes which are used in order to indicate if a certain transmission has not been accepted by the Revenue Canada computer. In a document filed as Exhibit A-3, Ms. Rougeaux explained the entries indicating the time of a transmission as: 14:14:14 on May 2, 1994 which was accepted by Revenue Canada on May 3, 1994 and assigned a particular RTU identification number. The example shown in the documents comprising Exhibit A-3 indicated there was a considerable delay between the time the information was transmitted to Revenue Canada and the time it was officially accepted by the Revenue Canada computer. Another example, as illustrated in documents comprising Exhibit A-4, showed a transmission of a taxpayer’s return to Revenue Canada at 17:37:17 on May 2, 1994 which was not given an RTU identification number until 08:05:00 on May 3, 1994. In that instance, she stated Revenue Canada did not assess a late filing penalty even though the deadline for filing that year was midnight on May 2, 1994 and the return was not officially accepted by Revenue Canada until more than eight hours had elapsed. She referred to an E-File Bulletin issued by Revenue Canada in 1994 - Exhibit A-5 - which referred to the April 30th filing deadline as follows:

All electronically filed returns transmitted on May 2, up to midnight local time, will be considered as being filed on time. For records that are returned to the agent for correction, the electronic filer will have until May 4 to correct and retransmit electronically. Records that are retransmitted and accepted, on or before May 4, will receive an April 30 filing date.

The effect of that bulletin was that E-filed returns would be accepted as being within the deadline provided they were transmitted by midnight on May 2, 1994. On the second page of Exhibit A-5, this statement appeared:

Due to heavy demand at Revenue Canada, RTUs transmitted during the daytime may take 10-12 hours to be acknowledged.

Ms. Rougeaux stated that in her experience some tax returns were rejected because the date of birth of the taxpayer or the surname might not match up with the records on file at Revenue Canada and this would involve a correction and retransmission. The Revenue Canada computer was capable of accepting certain returns and rejecting others which were included in a transmission or “batch”.

In cross-examination, Ms. Rougeaux stated that she paid a transmitter to send her client’s tax return to Revenue Canada and that the date and time on the Transmission Status Report - Exhibit A-2 - is the time when the transmitter sent the transmission on her behalf and she regards the transmitter as being a conduit for her by undertaking the transmission of a client’s tax return to Revenue Canada.

Chris Woodward testified he is a Chartered Accountant practicing in Calgary since 1978. He has been E-filing since the inception of the program and is a tax preparer and a transmitter. The tax return is prepared on computer using third party software - in his case, Cantax - and he then transmits a client’s return electronically to Revenue Canada via his modem. He referred to a Transmittal Record - Exhibit A- 6 - attached to which was a News Bulletin issued by Revenue Canada to E-Filers on May 3, 1994 which stated:

We are currently experiencing some delays due to the large number of acknowledgement files created in the last 24 hours. Please be patient, we are working on it.

With regard to the deadline of April 30, 1993, Woodward referred to a document forming part of Exhibit A-6 which was issued by Revenue Canada to E-filers which was tagged: IMPORTANT NOTICE and it went on to state:

Transmitters can guarantee that returns transmitted to them by 11:00 p.m. (transmitter time) will be considered as filed on time provided they are accepted before May 5, 1993.

In Woodward’s opinion, the policy of Revenue Canada seemed to be that tax returns submitted by a preparer would be accepted if a transmitter could satisfy Revenue Canada that the return had been sent to the transmitter before the filing deadline. He indicated that the date of birth of a taxpayer is not relevant if the taxpayer is between the age of 18 and 65.

In cross-examination, Woodward agreed that the term accepted in relation to an electronically transmitted return meant that it had been acknowledged as received by the Minister of National Revenue (the “Minister”).

Doug Ringstrom testified he is a Chartered Accountant practicing in Calgary. He received his designation in 1973 and has owned and operated a personal computer since 1982. In 1982, he worked for Revenue Canada as a computer audit specialist. On April 30, 1994, the appellant, Mark Crisanti, came into Ringstrom’s office. The tax return was prepared and he held the return in his computer and transmitted it to his transmitting agent -for the purpose of it later being sent to Revenue Canada - on the afternoon of May 2, 1994. On May 5, 1994, a list became available which indicated that of a batch of returns transmitted, seven were accepted and one was rejected, and that was the return of the appellant. The error code indicated that there was a non-match on the date of birth. Ringstrom stated that he telephoned the appellant to ensure that he had the correct date of birth. He then resubmitted the appellant’s return on May 5, 1994 but it was rejected again. He retransmitted the return and it was again rejected. He decided he could do nothing more and did not try again. He filed three pages of printout - Exhibit A-7 - showing certain entries on the first page which related to files created by his computer. As an example, on May 2, 1994 #016 was sent at 1:52 p.m. and #017 was sent at 2:45 p.m. No more files were sent until he discovered on May 5, 1994 that the appellant’s return had been rejected and Ringstrom retransmitted it as #018 the same day. The appellant’s return and that of his wife were sent to Revenue Canada as part of the same batch. The error code on the third page of Exhibit A-7 indicated that there was a problem with the date of birth provided for the appellant. However, Ringstrom stated that there are numerous reasons for a rejection by the Revenue Canada computer which might involve punctuation style in a place name in that the computer did not like periods or commas. The age of the appellant was not relevant to his return of income. In October, 1994, the appellant came into Ringstrom’s office bearing a notice from Revenue Canada to the effect that his return of income for 1993 had not been filed. Ringstrom then filed a paper copy of the Crisanti return. Later, a late filing penalty was assessed and Ringstrom discovered that the number provided in the tax return as the appellant’s social insurance number was wrong and that this was the cause of the E-filing rejection and not because of the date of birth. Ringstrom wrote to Pierre Gravelle, Deputy Minister of National Revenue and this letter and Mr. Gravelle’s reply was sent by Ringstrom to a professional journal which published the exchange of correspondence in the June/July 1995 issue. Ringstrom’s letter entitled: An unpleasant E-filing experience and Mr. Gravelle’s response was filed as Exhibit A-8. In the letter he recited briefly, without identifying his client, the facts of the rejected transmission on behalf of the appellant. He also stated that he transmitted his own tax return in the same batch as that of the appellant. Although he owed tax, no late penalty was assessed against him but Crisanti was assessed such a penalty. In dealing with Revenue Canada on the basis of filing returns electronically, he never received any form which bore the name of the Minister of National Revenue or his Deputy Minister.

In cross-examination, Ringstrom stated that he did not have any deductible on his errors and omissions policy. He agreed that the SIN # of the appellant, as contained in the E-filed tax return, was incorrect. Further examination revealed that the wrong number had been used for several years when the returns of the appellant were paper- filed. The birth date of the appellant was August 5, 1965 but August 5, 1963 was the date used in E-filing the appellant’s return. Ringstrom stated that he was not an authorized transmitter in 1993 and used the services of an entity known as Regent to transmit returns that he had prepared for his clients. Exhibit R-2, a document issued by Revenue Canada entitled Non-Accepted Records indicated that the transmission of the appellant’s tax return was done at 3:26 a.m. on May 3, 1994. The appellant’s return was retransmitted by Ringstrom on May 5, 1994 but, as was indicated by the Non-Accepted Record filed as Exhibit R-3, it was rejected by Revenue Canada. The error code shown was 000040 - referred to as error code 40 - and this pertains to an error in the date of birth. However, Ringstrom had corrected the appellant’s date of birth by this point in time. He later discovered the rejection was due to the error in the appellant’s SIN #. Ringstrom wrote a letter on December 9, 1994 to Ms. Marie Anderson, Non-Filers Section, Revenue Canada in which, inter alia, he stated that he had resubmitted the appellant’s return on May 2, 1994. He acknowledged that this was a misstatement and that he had actually done the re- transmission on May 5, 1994. He stated that his usual practice was to resubmit returns just to make sure they are accepted before a deadline and did so with the Crisanti return even though he expected the same error code to appear. The deadline to resubmit rejected tax returns was extended by the Minister to May 6, 1994. In his opinion, Revenue Canada is unable to tell when the transmitter received a particular return from a tax preparer.

Mohinder Bajwa was called as a witness in the appellant’s presentation of evidence and he testified he is employed at Revenue Canada as an E-file Coordinator. He stated that paper documentation is required only on a selective basis and, as a result, the system of E- filing depends on Revenue Canada being able to repose a high degree of trust in the integrity and accuracy of the tax preparers. Therefore, some preparers are not eligible for E-filing status. An error code 40 is one of the various codes set out in the E-file manual - Exhibit A-1 - which is sent out in the form of diskette to preparers. Error code 40 refers to an error in the date of birth. The deadline for filing returns for the 1993 taxation year was extended by the Minister to May 2, 1994 and, in addition, the date of May 6, 1994 was chosen as the date before which, previously rejected E-filed tax returns could be retransmitted. The Revenue Canada computer was unable to determine when the transmitter received the particular taxpayer’s return from the tax preparer. He identified the 1992 paper tax return of the appellant which was filed as Exhibit R-7. In the case of a paper return, it is accepted as it is filed. However, an electronically transmitted return sent before the filing deadline but which contains an error will not attract a late filing penalty provided it is corrected and retransmitted and accepted within the time frame given for such purpose, which was May 6, 1994 for the 1993 taxation year. No late filing penalties were assessed on any return unless it was filed after May 6, 1994 because the system in place at Revenue Canada is unable to differentiate between an original transmission of a return and a resubmitted transmission. The record of transmissions - Exhibit R-8 - indicates that the time of transmission of the Mark Crisanti 1993 tax return was 03:26:42 or 42 seconds following 3:26 a.m. on May 3, 1994. The deadline for filing had expired on May 2 at midnight. This date and time was when the transmitter - Regent - transmitted, pursuant to the arrangement with Ringstrom, the appellant’s tax return. Then, the record shows that on May 5, 1994 at 13:37:40 the appellant’s return was resubmitted. The previous error regarding the date of birth had now been corrected but that date of birth did not match up with the correct SIN # for the appellant so the transmission of his return was not accepted by Revenue Canada.

Later, at 16:03:08 on May 5, 1994, the appellant’s return was again transmitted to Revenue Canada but it contained the same SIN # as before and this was the number also used on the appellant’s T4 slip. On May 3, 1994 at 2:02 a.m., the record shows that the tax return of the appellant’s wife was transmitted to Revenue Canada and accepted.

Counsel for the appellant submitted that the Minister had extended the time for filing tax returns for the 1993 taxation year. The appellant’s tax preparer, Douglas Ringstrom, had transmitted the appellant’s return to the transmitter - Regent - prior to the deadline and that Regent was a reciprocal agent, meaning that it was also capable of accepting returns on behalf of Revenue Canada. The main advantage of the E-filing system is to reduce the amount of paper Revenue Canada has to handle and that the electronic system should be designed to facilitate that end.

The relevant provisions of the Income Tax Act relating to electronic filing are as follows:

150.1(2) Filing of return by electronic transmission. A person who meets the criteria specified in writing by the Minister may file a return of income for a taxation year by way of electronic filing.

150.1(3) Deemed date of filing. For the purposes of section 150, where a return of income of a taxpayer for a taxation year is filed by way of electronic filing, it shall be deemed to be a return of income filed with the Minister in prescribed form on the day the Minister acknowledges acceptance of it.

Under section 237(1) of the Income Tax Act, a taxpayer is required to provide, in the tax return, the social insurance number that he or she has been assigned.

It is unfortunate that the incorrect SIN # of the appellant found its way into his tax return for the 1993 taxation year. Had that error been included in a paper return for the same year, it would not have resulted in that return being rejected by the Minister. However, the system for electronic filing was set up in such a manner that an incorrect date of birth or SIN#, together with certain other information or style of reporting could lead to a return not. being accepted by the Revenue Canada computer. In the case of the appellant’s return, the situation was confused because the original error code 40 related to an error in his date of birth. That was corrected by Ringstrom within the time extension granted by the Minister for that specific purpose but the next transmission was also rejected because the SIN# was incorrect. The problem was that the same error code 40 was given as the reason for the rejection and Ringstrom again transmitted the return knowing that it would probably not be accepted despite the fact that he had corrected the error in the appellant’s date of birth.

I cannot find that Regent, the entity responsible for transmitting the returns prepared by Douglas Ringstrom C.A., is an agent of Revenue Canada for the purpose of accepting returns. It is not statutorily permitted to do so and the Minister did not designate that responsibility, if indeed it could be done. The problem the appellant has from an evidentiary standpoint is that it is probable that Regent did not undertake the transmission of the appellant’s return to Revenue Canada until 3:26 a.m. on May 3, 1994, nearly three and one-half hours after the deadline has passed. The Minister, by way of computer news bulletin, advised preparers and transmitters that corrections could be made up to midnight on May 6, 1994. However, that was solely on the basis that a return had earlier been submitted electronically prior to midnight on May 2. The extension was clearly for correcting errors in returns that otherwise had been sent before the expiry of the time permitted for filing. There was no evidence adduced by the appellant from anyone at Regent that may have shed some light on whether or not there were transmission difficulties prior to midnight on May 2. Had Regent _— the transmitter — been unable to make contact with the Revenue Canada computer despite attempting, prior to midnight, numerous transmissions, then the result for the appellant may well have been different because that evidence may have demonstrated that everything possible had been done to meet the deadline but the inadequacy of the Revenue Canada receiving system made that impossible to achieve. The E-filing system was relatively new in 1993 and it is reasonable to expect that there were a few bugs or glitches which were subject to review at the end of the tax-filing season by both Revenue Canada and the professionals involved in tax preparation.

In the present appeal, there is nothing before me which would indicate that the appellant’s tax return was transmitted before the deadline and that it was sitting in storage, or floating in cyberspace, before being accepted by the Revenue Canada computer at 3:26 a.m. on May 3, 1994. The logical conclusion to draw is that Regent did not in fact meet the deadline and in failing to do so, caused Ringstrom not to have filed his client’s return on time, despite having transmitted it from his computer to Regent’s computer on May 2, 1994, together with the return for the appellant’s wife, prior to 2:45 p.m.

The Minister was correct in assessing the late filing penalty and the appellant’s appeal is hereby dismissed.

Appeal dismissed.