An estate argued that it should be excused from late filing penalties because it had relied on the advice of an attorney—but the court in the case of West, et al v. Koskinen, 2015 TNT 203-11 (USDC Eastern District Virginia) determined that, in fact, there had been no advice received from the attorney on this matter.
The issue involved the estate tax return that would be due for the estate of June West. When June died one of her children contacted her attorney. The Court summarized this contact as follows:
Shortly after June West's death, Lesley West contacted John Rodgers, June West's attorney, to solicit Rodgers' assistance in settling June West's estate. See P. West Dep. Ex. 1. Thereafter, Peter West emailed Rodgers on January 3, 2010, seeking guidance as to "what legal followups are needed in the short term." Id. Rodgers replied to the email the next day, advising that plaintiffs would "need to pay [June West's] final bills, and . . . possibly file a Federal Estate tax return, [June West's] final 1040, and a trust income tax return." P. Br. (Doc. 29), Ex. 1 at 79. Rodgers went on to explain that "[t]his all takes as short as a few months or (if an estate tax return is required) as long as [two] years." Id. The following day, Peter West, again via email, responded that he was "sure there will be tax due" on the estate and that he "assume[d]" that John Renner, the accountant hired to do June West's 2009 taxes, "would also take care of preparing estate taxes." Gov't Br. (Doc. 32), Ex. A.
Peter interepreted this to mean that the estate tax return would not be due until a date that could be as far as two years in the future. Of course, Peter’s reply email caused the attorney to believe that all matters related to the estate tax return would be handled by the accountant. Not surprisingly, this proved a recipe for disaster.
The executors met with the attorney in February of 2010 but did not discuss the due date for any estate tax return.
The next interaction with the attorney did not take place until November 2010, which was after the original due date for the estate tax return (which, as noted above, the attorney had assumed the accountant was taking care of). At this time the following took place:
In November, Peter West met with his siblings around Thanksgiving and thereafter emailed Rodgers inquiring as to what plaintiffs "need[ed] to do next in order to start work on the estate taxes." Gov't Br. (Doc. 32), Ex. B. Rodgers interpreted this question as Peter West's hiring him to prepare the estate taxes, and Rodgers began work preparing the estate tax return in December 2010.4 Rodgers was not concerned that the deadlines had already passed and he never mentioned this fact to plaintiffs, as he mistakenly assumed that Renner, the accountant, had obtained the appropriate extensions, as Peter West had earlier advised Rodgers that Renner would "take care of preparing estate taxes." Gov't Br. (Doc. 32), Ex. A.
Unfortunately there was estate tax due on June’s estate and, since no extension had been filed, the clock was already ticking on late filing penalties. As the story continues:
In March 2011, Rodgers informed Lesley West that the final estate tax due was $1,258,019. Thereafter, on March 28, 2011, Lesley West mailed the signed tax return to the IRS together with a check in full payment of the tax due. A few weeks later, on May 11, 2011, Lesley West received notice from the IRS that the estate was required to pay late filing and late payment penalties. Lesley West immediately contacted Rodgers, who, on June 8, 2011, requested the IRS to abate the penalties. This request was denied. On October 11, 2011, Lesley West received a notice from the IRS that the estate owed $335,636.76 in penalties and interest, which Lesley West then paid. Thereafter, on December 2, 2011, Rodgers filed a claim on behalf of the estate for a refund of $316,000, which the IRS denied on February 7, 2013.
So now the question before the Court was whether, in fact, the estate had reasonably relied upon the erroneous advice of Counsel with regard to the due date and therefore should be relieved of the $335,636.76 of penalties.
The Court, like the IRS, decided that they had not relied on any sort of advice, erroneous or otherwise, with regard to the due date. As the opinion notes:
Simply put, Rodgers' January 4, 2010 email to Peter West was not legal advice as to the date of a filing or payment deadline. The language on which plaintiffs seize is Rodgers' comment that "[t]his all takes as short as a few months or (if an estate tax return is required) as long as [two] years." West -- 0048. This is insufficient as a matter of law to constitute legal advice as to tax filing or payment deadlines for several reasons. First, nothing in the record indicates that plaintiffs ever asked for a deadline, even before the January 4 email was sent. Indeed, Peter West's January 3 email that prompted Rodgers' January 4 response email simply asked what needed to be done in the "short term." P. West Dep. Ex. 1. Thus, Rodgers was clearly not responding to a request for specific information about a deadline. Moreover, the email does not contain the language characteristic of advice as to deadlines, e.g., "pay by," "due on," or "file within." Finally, there is no objective basis to determine from what date Rodgers would even calculate a two-year deadline. That is, when Rodgers stated that an estate tax process can take "as long as [two] years," there is no indication of when the two-year period begins to run. Possible answers abound: the date of death, the date of the email, the date of final estate valuation, or perhaps other possibilities. The email's lack of clarity as to any deadlines underscores why it cannot qualify, from any objective standpoint, as legal advice about estate tax filing and payment deadlines.
The executors argued that even if it wasn’t advice, they should still be relieved because the actual standard should simply be whether it was objectively reasonable for them to have interpreted this as providing advice as to the due date. But the Court noted:
It is not objectively reasonable to interpret the email in this manner. Again, it must be noted that Rodgers' email was not sent in response to a specific request for a deadline. Nor did Rodgers use language one might expect to see in advice about a deadline. Instead, a reasonable reader exercising "ordinary business care and prudence"9 and reading the email consistent with the general usage of the English language would view the "as long as [two] years" language as stating a general timeframe.10 Simply put, Rodgers' January 4 email -- the basis of plaintiffs' "reasonable cause" claim -- is not legal advice as to the estate tax filing or payment deadlines. No reasonable person exercising ordinary business care and prudence would rely on the email for that purpose. To the contrary, a reasonable person exercising ordinary business care and prudence would seek clarification, as plaintiffs might have done during a later face-to-face meeting, which plaintiffs had with Rodgers in February.