Friday, December 14, 2007

CAN RELIANCE ON AN ATTORNEY AVOID PENALTIES FOR LATE FILING OF ESTATE TAX RETURN?

Code Section 6651(a)(1) provides for an addition to tax in the event a taxpayer fails to file a timely return (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect. What happens if an executor relies on his or her attorney to prepare the estate tax return, and the attorney doesn't prepare the return before the due date? Is the executor's reliance on the attorney reasonable cause?

No, says the Tax Court, in a case earlier this year. The Court quoted a Supreme Court case that provided:

Congress has placed the burden of prompt filing [of an estate tax return] on the executor, not on some agent or employee of the executor. *** Congress intended to place upon the taxpayer an obligation to ascertain the statutory deadline and then to meet that deadline, except in a very narrow range of situations.

However, the Court did provide some limited circumstances where reliance on an attorney could be a valid excuse. One of these is if the attorney specifically advised the executor of the due date of the return, but gave an erroneous date, and the return was filed late due to that erroneous advice.  Another is when the attorney erroneous advises that no return is due, causing the executor to file the return late.

Estate of Gertrude Zlotowski, et al., TC Memo 2007-203,

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