Sixth Circuit Agrees That Attorney's Failures Did Not Excuse Estate From Being Penalized for Late Filing

In early 2015, we wrote a post in this blog regarding the case of Specht v. Commissioner and the executor's argument that the estate had reasonable cause for late filing of its estate tax return due to failures of the estate's legal counsel to perform her duties, along with statements the attorney made to mislead the executor regarding her failures to perform those duties.

The U.S. District Court found in that case that, regardless of the attorney's failures and the executor's lack of sophistication, the executor could not delegate her duty to insure that returns were filed by the due date.  Thus, the Court sustained penalties and interest of nearly $1.2 million against the estate.

Given the amounts involved, not surprisingly the estate appealed this decision to the Sixth Circuit Court of Appeals (Case No. 15-3095, 118 AFTR 2d ¶ 2016-5243)—but the appellate panel found that executor has not shown reasonable cause for her failure to insure the return was timely filed.  The medical condition of the attorney, and its effect on her ability to competently conduct her practice weren’t relevant as the opinion notes “the relevant question is whether the executor, not the attorney, was reasonable in missing the deadline.”

Had the attorney been the executor, it’s very possible the court would have found reasonable cause for the late filing—but timely filing cannot be delegated by a taxpayer to a third party.  The taxpayer may have reasonable cause relief for cases where the taxpayer received erroneous advice on a matter of law (such as being told no return was required when, in fact, it was) but not for what the courts see as the simple matter of seeing if a document was actually filed on a specific date.