T.C. Memo. 2006-230
UNITED STATES TAX COURT
ESTATE OF MARGARET LANDERS, DECEASED, DALE SELTZER,
CO-ADMINISTRATOR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 5791-05, 5792-05L, Filed October 26, 2006.
11015-05L.
Elliott H. Kajan and Steve Mather, for petitioner.
Elaine T. Fuller, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
LARO, Judge: In docket No. 5791-05, the Estate of Margaret
Landers, Deceased, Dale Seltzer, Co-Administrator, petitioned the
Court to redetermine a $13,447.46 addition to tax determined by
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respondent under section 6651(a)(1).1 The $13,447.46 related to
a $53,790 deficiency in the Federal estate tax of the Estate of
Margaret Landers (the estate). The estate had paid the
deficiency before the notice of deficiency was issued. In docket
No. 5792-05L, petitioner petitioned the Court to review a
determination by respondent’s Office of Appeals (Appeals)
sustaining a lien relating to the estate’s liability for assessed
additions to tax under section 6651(a)(1) and (2). Those
assessed additions to tax related to the tax reported on the
estate’s Federal estate tax return (the estate tax return). In
docket No. 11015-05L, petitioner petitioned the Court to review a
determination by Appeals sustaining a levy proposed by respondent
to collect the just-mentioned assessed additions to tax, plus
interest.
The three cases resulting from these petitions were
consolidated for purposes of trial, briefing, and opinion. On
May 11, 2006, the Court granted the unopposed motion to amend the
petition in docket No. 5791-05 to allege that the estate overpaid
additions to its Federal estate tax and was entitled to a refund.
The amendment alleged that the estate paid $470,098.56 for which
it was not liable, consisting of: (1) A $340,070.40 addition to
tax under section 6651(a)(1) relating to the tax reported on the
1
Unless otherwise indicated, section references are to the
applicable version of the Internal Revenue Code.
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estate tax return and (2) a $130,028.16 addition to tax under
section 6651(a)(2). The estate paid the $470,098.56 (but not the
related interest) on May 4, 2006.
Following a trial of these cases, we decide whether either
the late filing of the estate tax return or the late payment of
the related tax was due to reasonable cause. We hold that
neither was.
FINDINGS OF FACT
1. Preface
Some facts were stipulated. We incorporate herein by this
reference the parties’ stipulation of facts and the exhibits
submitted therewith. We find the stipulated facts accordingly.
Margaret Landers (decedent) died on January 21, 2000. The
coadministrators of the estate were Dale Seltzer (Seltzer) and
Mark Gershon (Gershon). The coadministrators each vowed to
“perform the duties of personal representative according to law”.
Gershon died on December 13, 2003, and Seltzer is now the
estate’s sole administrator. Seltzer resided in Los Angeles,
California, when the petitions were filed in these cases.
2. Robert Landers
Robert Landers was decedent’s husband, and he died on
January 29, 1993. In 1984, Robert Landers and decedent
(collectively, the Landerses) established a revocable trust
(trust). The trust held most of decedent’s property. Seltzer
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and Gershon were the cotrustees of the trust, and Seltzer and his
wife were the trust’s primary beneficiaries.
3. Seltzer
Seltzer is the nephew of the Landerses. In 1988, Seltzer
began working for the Landerses managing their real estate
holdings (mostly, rental properties). Seltzer’s managerial
duties included collecting rent, handling repairs, and paying
bills. As to the trust, Seltzer’s responsibilities included
assuring that all of decedent’s expenses were paid timely and in
full and that all of the rents were collected and deposited into
the appropriate bank accounts.
Daly Property Management (DPM) and GlenLee, LLC (GlenLee),
are real estate management businesses in which Seltzer (or his
family) have ownership interests. Seltzer is DPM’s president and
GlenLee’s general managing partner.
4. Gershon
Gershon was an enrolled agent who performed the tax and
accounting services for the rental properties owned directly or
indirectly by the Landerses. Gershon also prepared the estate
tax return and prepared the trust’s 2000 Federal income tax
return. The trust’s 2000 Federal income tax return was signed by
Seltzer on April 14, 2001, and received by respondent for filing
on April 18, 2001.
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When decedent died, Gershon was in good health and of sound
mind. Approximately 13 months later, on February 23, 2001,
Gershon slipped and fractured his hip. Before this accident, the
coadministrators met two to three times a week to effect the
business of the estate. After the accident (including during the
short period that Gershon was hospitalized for the hip injury),
the coadministrators continued to meet two to three times a week
to effect the business of the estate. Gershon was active and
upbeat after his accident.
5. The Estate Tax Return
The estate tax return was originally due on October 21,
2000. Pursuant to a request for an extension made by Gershon on
October 17, 2000, the due date for that return was extended to
April 21, 2001. Gershon’s request was accompanied by a payment
of $2.4 million and included a request to extend the time to pay
the tax related to the estate tax return. Pursuant to Gershon’s
request, the time to pay the tax was extended to October 21,
2001.
The coadministrators filed the estate tax return on February
4, 2002, reporting a liability of $3,911,424 and a balance due of
$1,669,222 ($3,911,424 of estate tax - $2.4 million paid with the
extension request + reported interest due of $157,798). The
return was accompanied by a payment of $600,000. On April 1,
2002, respondent assessed as to the return additions to tax under
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section 6651(a)(1) and (2) of $340,070.40 and $130,028.16,
respectively, and related interest of $192,962.20.
As of the date of decedent’s death, the estate held assets
with an aggregate value in excess of $9 million. After the
estate tax return was filed, the estate paid the following
amounts toward its tax liability: $500,000 on April 29, 2002,
$500,000 on May 13, 2002, and $104,386.20 on June 11, 2002. The
coadministrators obtained the funds to make these three payments
by refinancing some of the estate’s real property. These three
payments paid the balance of the estate tax shown as due on the
return, plus the assessed interest.
Seltzer knew there was a deadline to file the estate tax
return and that an extension of time had been obtained for filing
that return. Seltzer did not ascertain the extended due date for
the return or attempt to ascertain the extended due date from
anyone other than Gershon but was content to rely on Gershon to
file the estate tax return timely. Seltzer’s habit was to
satisfy obligations immediately, and when the estate tax return
was being prepared, Seltzer made sure that the bills of DPM and
GlenLee were paid. Seltzer was in good health throughout the
time that the estate tax return was under preparation.
6. The Audit of The Estate Tax Return
Respondent audited the estate tax return and proposed a
deficiency of $53,790 and an addition to tax of $13,447.46 under
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section 6651(a)(1). On or about January 28, 2004, respondent
issued to the estate a 30-day letter reflecting the proposed
adjustments. The estate paid the deficiency but disputed the
addition to tax. By letter dated February 25, 2004, the estate
protested both the addition to tax under section 6651(a)(1)
asserted with respect to the deficiency and the additions to tax
assessed upon the filing of the estate tax return (the protest).
7. Filing of a Lien and Proposal of a Levy
Respondent filed a notice of Federal tax lien on February
25, 2004. One day later, respondent issued to the estate a
Notice of Intent to Levy and Notice of Your Right to a Hearing.
On March 1, 2004, respondent sent to the estate a Notice of
Federal Tax Lien Filing and Your Right to A Hearing Under IRC
6320. On March 23, 2004, Appeals received from the estate a
request (request) for a hearing (hearing) as to both the lien
notice and the levy notice. By letter dated June 22, 2004,
Appeals Team Manager George Riter contacted the estate regarding
the request.
8. The Protest
The protest (and not the hearing) was assigned to Appeals
Officer James Christianson (Christianson). Christianson
considered both the deficiency portion of the addition to tax
under section 6651(a)(1) and the additions to tax assessed under
section 6651(a)(1) and (2). On January 20, 2005, respondent
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issued to the estate a notice of deficiency that informed it that
Christianson had rejected the protest to the extent of the
disputed deficiency portion of the section 6651(a)(1) addition to
tax. The notice of deficiency contained no determination as to
the assessed additions to tax.
9. The Hearing
Following the issuance of the notice of deficiency,
respondent resumed his administrative proceeding concerning the
request. The request was assigned to Appeals Officer Michael
Beecher. By letter dated February 9, 2005, Beecher contacted the
estate regarding the request. The letter noted that the estate
had had a previous hearing with Appeals regarding the section
6651(a)(1) addition to tax and invited the estate to raise any
other relevant issue and to provide financial information in
order for Appeals to consider collection alternatives. The
estate did not respond to the February 9, 2005, letter.
Appeals (through Christianson) determined that the lien was
not unnecessarily intrusive and on March 10, 2005, issued the
estate a notice of determination approving the lien. Appeals
(through Christianson) determined that the proposed levy was not
unnecessarily intrusive and on May 27, 2005, issued the estate a
notice of determination approving the levy.
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OPINION
We decide whether the estate is liable for the additions to
tax respondent determined under section 6651(a)(1) and (2). The
coadministrators filed the estate tax return late and paid much
of the related tax late. Petitioner argues that the
coadministrators exercised ordinary business care and prudence in
trying to file the return timely and to pay the tax timely. As
to the untimely filing, petitioner argues that Seltzer lacked the
knowledge to file the return timely, that Seltzer therefore
relied on Gershon to file the return timely, and that Gershon’s
hip fracture resulted in the return’s untimely filing.
Petitioner also argues that Seltzer’s reliance on Gershon to file
the return timely was reasonable because Cal. Prob. Code sec.
16012 (West Supp. 2006) allowed Seltzer to delegate the duty of
filing the return to Gershon as long as Seltzer regularly
monitored Gershon’s actions underlying that filing. Petitioner
argues as to the untimely payment that Gershon’s hip fracture
also resulted in the late payment and that Seltzer could not pay
any of the estate tax owed until Gershon calculated the amount of
estate tax due.
We disagree with petitioner that there was reasonable cause
for either the late filing or the late payment.
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1. Addition to Tax for Late Filing
Section 6651(a)(1) provides an addition to tax of 5 percent
per month (up to a maximum of 25 percent) for a failure to file a
timely tax return, unless it is shown that the untimely filing is
due to reasonable cause and not due to willful neglect.
Respondent has met his burden of production under section 7491(c)
as to the applicability of section 6651(a)(1), and petitioner
bears a “heavy” burden of now proving that the coadministrators
had reasonable cause for filing the estate tax return late.
United States v. Boyle, 469 U.S. 241, 245 (1985); see Higbee v.
Commissioner, 116 T.C. 438, 446-447 (2001). Reasonable cause may
be found if the coadministrators exercised ordinary business care
and prudence and were nevertheless unable to file the estate tax
return on time. See United States v. Boyle, supra at 246; sec.
301.6651-1(c)(1), Proced. & Admin. Regs.
Petitioner has failed to persuade us that the late filing of
the estate tax return was due to reasonable cause or, in other
words, to the exercise of ordinary business care and prudence on
the part of the coadministrators. As to Gershon, he fractured
his hip approximately 2 months before the extended due date of
the estate tax return, and the record does not establish why
Gershon waited until those last 2 months to file the return.
Even so, we see no reason why Gershon could not have filed that
return timely. Gershon continued working after fracturing his
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hip, and he regularly met with Seltzer concerning business
matters. Gershon also filed the trust’s return at approximately
the same time that the estate tax return was due. The estate tax
return was filed more than 9 months late, or in other words more
than 1 year after Gershon fractured his hip. We decline to find
on the basis of the record at hand that Gershon’s accident was
sufficiently disabling to constitute reasonable cause for failing
to file the estate tax return timely.
Nor do we agree with petitioner that Seltzer’s actions in
this matter constitute reasonable cause. As a fiduciary of the
estate, Seltzer was responsible for ascertaining the dates when
the return and the tax payment were due and making sure that
those dates were met. See Estate of DiRezza v. Commissioner,
78 T.C. 19, 33-34 (1982). Yet, Seltzer never ascertained the due
date of the estate tax return let alone made sure that the due
date was met. These responsibilities were nondelegable duties
assumed by Seltzer when he accepted the job as coadministrator of
the estate, see United States v. Boyle, supra at 249, and
Seltzer’s claim that he tried to delegate this responsibility to
Gershon does not amount to reasonable cause.
Petitioner reads Cal. Prob. Code sec. 16012 to conclude that
Seltzer was allowed to delegate the timely filing of the estate
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tax return to Gershon.2 We read that section as it is written
and come to a contrary conclusion. The fact that Seltzer’s duty
to file the estate tax return timely is an act “that the trustee
[Seltzer] can reasonably be required personally to perform” is
quickly seen from the Supreme Court’s observation in United
States v. Boyle, supra at 252, that it takes no special expertise
to ascertain the due date of a tax return or to make sure that
the due date is met. Such is especially so given that Seltzer
was not laboring under any disability which might excuse his
failure to exercise the requisite ordinary business care and
prudence; he was in good health and even made sure that the bills
of DPM and GlenLee were paid timely and in full. Seltzer’s
selective inability to meet his tax obligations as a
coadministrator of the estate, when he continued to conduct
normal business operations, supports our finding that the
reasonable cause exception has not been met as to him. See Bear
2
Cal. Prob. Code sec. 16012 (West Supp. 2006) provides in
relevant part:
SEC. 16012. Delegation of duties; prohibitions;
exceptions
(a) The trustee has a duty not to delegate to
others the performance of acts that the trustee can
reasonably be required personally to perform * * *.
(b) In a case where a trustee has properly
delegated a matter to an agent, cotrustee, or other
person, the trustee has a duty to exercise general
supervision over the person performing the delegated
matter.
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v. Commissioner, T.C. Memo. 1992-690, affd. without published
opinion 19 F.3d 26 (9th Cir. 1994). While petitioner asks the
Court to adopt a different rule because Seltzer is not a tax
professional, we decline to do so.3
2. Addition to Tax for Late Payment
Section 6651(a)(2) provides an addition to tax of 0.5
percent per month (up to a maximum of 25 percent) for failing to
pay on or before the payment due date the taxes shown on a
return, unless that failure to pay is due to reasonable cause and
not due to willful neglect. See United States v. Boyle, supra at
245; Crocker v. Commissioner, 92 T.C. 899, 912 (1989); sec.
301.6651-1(a)(2), Proced. & Admin. Regs. Again, respondent has
met his burden of production under section 7491(c) as to the
applicability of section 6651(a)(2), and petitioner bears a
burden of proving that the coadministrators had reasonable cause
in paying the estate’s estate tax late. See Higbee v.
Commissioner, 116 T.C. at 446-447. Reasonable cause may be found
if the taxpayer exercised ordinary business care and prudence and
nevertheless either was unable to pay the tax or would have
3
Petitioner does not claim that Seltzer is other than an
“ordinary person”; i.e., “one who is physically and mentally
capable of knowing, remembering, and complying with a deadline”,
United States v. Boyle, 469 U.S. 241, 253 (1985) (Brennan, J.,
concurring), and we view him to be an “ordinary person”. Thus,
we do not address the point made by Justice Brennan in his
concurrence in Boyle that a different rule may apply when a
fiduciary is unable to meet the standard of “ordinary business
care and prudence”.
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suffered undue hardship if the tax had been paid by the due date.
See sec. 301.6651-1(c), Proced. & Admin. Regs.
Petitioner makes no claim that the estate would have
suffered undue hardship if the estate had paid the tax by the due
date, and we do not find independently on the basis of the record
at hand that such would have been the case. The thrust of
petitioner’s argument is that Gershon’s hip injury prevented him
from preparing the estate tax return in time to pay the estate
tax timely and that Seltzer could not otherwise pay that tax
because he needed the return to know how much tax to pay. We are
unpersuaded. For the reasons stated above in our discussion of
the addition to tax for late filing, we conclude that the
coadministrators did not exercise ordinary business care and
prudence in attempting to pay the tax timely. We add that we
believe that an ordinary and reasonable person in Seltzer’s
position would have consulted another individual as to the estate
tax return had he or she known that the return was on extension
and believed that the current preparer was suffering from a
disability.
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We hold that the estate is liable for the additions to tax
at issue. We have considered all of petitioner’s arguments for a
contrary holding and conclude that those arguments not discussed
herein are without merit.
Decisions will be entered
for respondent.