T.C. Memo. 2007-203
UNITED STATES TAX COURT
ESTATE OF GERTRUDE ZLOTOWSKI, DECEASED, GUNTHER GREWE, ANCILLARY
ADMINISTRATOR, C.T.A., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22150-04. Filed July 24, 2007.
Susan Litwer, Howell Bramson, and Robert H. Rosh
(specially recognized), for petitioner.
Lydia A. Branche and Shawna A. Early, for
respondent.
MEMORANDUM OPINION
HALPERN, Judge: This case involves the Federal estate tax.
The decedent (decedent) is Gertrude Zlotowski. By notice of
deficiency dated August 24, 2004, respondent determined a
- 2 -
deficiency in Federal estate tax of $933,437 and an addition to
tax for failure to file timely the estate tax return of $233,359.
All section references are to the Internal Revenue Code in
effect for the date of decedent’s death, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
On account of stipulations made by the parties, which we
accept, the sole issue remaining for our decision is the addition
to tax for failure to file timely the estate tax return.
Some facts have been stipulated and are so found. The
stipulation of facts, with accompanying exhibits, is incorporated
herein by this reference. We need find few facts in addition to
those stipulated and shall not, therefore, separately set forth
our findings of fact. We shall make additional findings of fact
as we proceed.
Background
We may be brief in our background discussion since the issue
before us is narrow: Was the failure to timely file the estate
tax return due to reasonable cause and not due to willful
neglect?
Decedent died on September 10, 1999. At that time, although
a U.S. citizen, she was domiciled in Germany. She had made two
wills, the U.S. will and a later, German will (the German will),
which revoked the U.S. will.
- 3 -
Apparently in ignorance of the German will, on or about May
22, 2000, two individuals nominated in the U.S. will as
executors, Jacques Roisen (Mr. Roisen) and Henry Helman (Mr.
Helman), presented the U.S. will for probate in the Surrogate’s
Court of the State of New York (the Surrogate’s Court). On May
31, 2000, the Surrogate’s Court granted them preliminary letters
testamentary. James R. Ledley, Esq. (Mr. Ledley), represented
them in connection with their services in administering
decedent’s estate (the estate). Messrs. Roisen and Helman played
little role in the selection of Mr. Ledley as their counsel, but
they accepted him as having been selected by decedent’s attorney.
Some time early in June 2000, Mr. Ledley learned about the German
will.
Because of the value of the estate, a Form 706, United
States Estate (and Generation-Skipping Transfer) Tax Return, was
due from the executors of the estate on or about June 12, 2000.
Messrs. Roisen and Helman requested and received an extension to
file that return (the estate tax return) until December 10, 2000.
The parties have stipulated that, with respect to that request,
Mr. Ledley represented Messrs. Roisen and Helman. Messrs. Roisen
and Helman did not file the estate tax return until September 19,
2001.
Some time in 2003, the heirs under the German will hired an
American attorney to help with ancillary proceedings in the
- 4 -
Surrogate’s Court. On June 4, 2004, Dr. Gunther Grewe (Dr.
Grewe) was appointed Ancillary Administrator, C.T.A., of the
estate. At the time the petition was filed, Dr. Grewe had a
mailing address in Rye, New York.
On or about June 4, 2004, the preliminary letters
testamentary issued to Messrs. Roisen and Helman were revoked.
At the trial of the case, Mr. Roisen testified; Mr. Helman
did not, since he was deceased. In part, Mr. Roisen testified as
follows: He is 85 years old. He owns real estate and is the
head of his own diamond firm. He believes that he was nominated
as an executor because he was close to decedent’s husband, with
whom he had done business. He knew nothing about the estate and
relied fully on the attorneys (i.e., Mr. Ledley), who were in
charge of the estate. The job of filing the estate tax return
was in Mr. Ledley’s hands. He (Mr. Roisen) did not participate
in the preparation of the estate tax return. He had full
confidence in Mr. Ledley, and his only responsibility with
respect to filing the estate tax return was to sign it after it
had been prepared by Mr. Ledley. He signed the estate tax return
on August 28, 2001. He never discussed with Mr. Ledley penalties
for a late-filed return. In response to respondent’s counsel’s
question as to whether Mr. Ledley had ever discussed with him
whether the estate tax return was going to be filed on time, he
answered as follows: “Well, they mentioned it to me at one time
- 5 -
that they were a little late in the filing, and that they took
care of it, and that they would file it a little later.”
Mr. Ledley also testified at the trial of the case. In
part, he testified as follows: It was his duty to prepare the
estate tax return for Messrs. Roisen and Helman. He began that
preparation after being retained in 2000. In late September or
early October of 2000, he advised Messrs. Roisen and Helman to
suspend their administration of the estate. He did so because he
had received correspondence from Europe that, if Messrs. Roisen
and Helman meddled in the estate, it would be at their own risk.
He advised them to not then file an estate tax return. He,
himself, suspended preparation of the estate tax return. He
returned to preparation of the estate tax return either in late
January or early February of 2001, since it was taking a long
time for the heirs under the German will to take over the New
York proceeding.
Discussion
I. Statutory Scheme
Section 2001(a) imposes an estate tax, and section 6018
imposes on the executor the obligation to make the necessary
return of tax. The term “executor” is defined in section 2203,
and the parties agree that (1) Messrs. Roisen and Helman were
executors within the meaning of those sections, and (2) they, and
- 6 -
only they, were responsible for filing the estate tax return when
it became due.
Section 6075 establishes that an estate tax return must be
filed within 9 months after the decedent’s death, and section
6081 allows the Secretary of the Treasury to grant an extension
of time to file for no more than 6 months. Messrs. Roisen and
Helman received an extension to file the estate tax return until
December 10, 2000. The return was not filed until September 19,
2001, however, and was, therefore, delinquent.
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. The amount of the addition is equal to 5
percent of the amount required to be shown as tax on the
delinquent return for each month or fraction thereof during which
the return remains delinquent, up to a maximum addition of 25
percent for returns more than 4 months delinquent.
II. Dispute
The parties do not dispute the computation of the section
6651(a)(1) addition to tax (which respondent agrees must be
recomputed, due to additional deductions allowed petitioner).
They dispute only whether petitioner has avoided the addition to
tax by showing that Messrs. Roisen and Helman’s delinquency in
- 7 -
filing the estate tax return was due to reasonable cause and not
due to willful neglect.1
The term “willful neglect” denotes “a conscious, intentional
failure or reckless indifference.” United States v. Boyle, 469
U.S. 241, 245 (1985). Reasonable cause is established where,
despite the exercise of ordinary business care and prudence, a
taxpayer is unable to file timely. Id. at 246 & n.4; sec.
301.6651-1(c)(1), Proced. & Admin. Regs.; see also McMahan v.
Commissioner, 114 F.3d 366, 369 (2d Cir. 1997) (considering
elements constituting reasonable cause for late filings under
section 6651(a)(1)), affg. T.C. Memo. 1995-547.
Respondent does not contend that the return was delinquent
because of Messrs. Roisen and Helman’s willful neglect, only that
they have failed to establish reasonable cause for the
delinquency. Respondent relies on the following points to
support his reasonable cause conclusion: Reliance on the advice
of an attorney concerning matters of law constitutes reasonable
cause. However, a taxpayer’s reliance on the advice of an
attorney with respect to matters such as meeting filing deadlines
generally does not constitute reasonable cause. Here, Mr. Ledley
1
The delinquency having been established, respondent has
met the burden of production placed on him by sec. 7491(c), see,
e.g., Weaver v. Commissioner, T.C. Memo. 2004-108, and petitioner
bears the burden of proving reasonable cause and the lack of
willful neglect, see Rule 142(a); Higbee v. Commissioner, 116
T.C. 438, 446-447 (2001).
- 8 -
gave Messrs. Roisen and Helman no advice on which they could
rely. They have failed to show that he advised them that, as a
matter of law, it was not necessary to file timely the estate tax
return. Moreover, their reliance on him to file the estate tax
return was an impermissible delegation of their responsibility as
executors. Respondent adds: “If the executor is unable to obtain
complete information about the decedent[’s] assets, he must still
file a timely tax return based on the information available at
that time.”
Petitioner relies principally on the argument that Messrs.
Roisen and Helman had reasonable cause “because it is abundantly
clear that they relied on the advice of their attorney not to
file at the time the return was due.”
III. Discussion
A. Introduction
In United State v. Boyle, supra at 249-250, the Supreme
Court stated:
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.
The Court recognized that engaging an attorney to assist in
probate proceedings is “plainly an exercise of the ‘ordinary
business care and prudence’ prescribed by [section
301.6651-1(c)(1), Proced. & Admin. Regs.]”. Id. at 250.
- 9 -
Nevertheless, describing the executor’s duty to file the return
as an “unambiguous, precisely defined duty”, the Court cautioned
that the executor’s expectation that the attorney, as his agent,
would attend to the matter “does not relieve the principal of his
duty to comply with the statute.” Id. The Court described as
among those very narrow circumstances in which an executor may be
excused from discharging his duty to ascertain and meet the
filing deadline the circumstance in which an executor has relied
on the erroneous advice of counsel concerning a question of law;
e.g., “when a taxpayer shows that he reasonably relied on the
advice of an accountant or attorney that it was unnecessary to
file a return, even when such advice turned out to have been
mistaken.” Id.
B. Analysis
We start our analysis with two unassailable facts: Messrs.
Roisen and Helman were obligated to file the estate tax return no
later than December 10, 2000, and they failed in that obligation.
Petitioner may escape an addition to tax on account of that
failure if he can show that they had reasonable cause for the
failure because they reasonably relied on the advice of Mr.
Ledley that they had no such obligation. Petitioner, however,
has failed to make that showing. Indeed, petitioner has failed
to show that, on December 10, 2000, Messrs. Roisen and Helman
were aware that the last day for filing the estate tax return was
- 10 -
passing without the return being filed, much less that they let
it pass without filing the return in reliance on Mr. Ledley’s
advice.
Mr. Helman is deceased, and petitioner has provided no
evidence of Mr. Helman’s state of mind. Mr. Roisen testified
about his administration of the estate, and, from that testimony,
we draw the conclusion that he was almost completely disengaged
from estate administration, relying on Mr. Ledley to do virtually
all that was required of him and Mr. Helman. Specifically, we
make the following findings, based on Mr. Roisen’s testimony: He
agreed to serve as an executor to accommodate his old business
acquaintance, decedent’s husband. He relied on decedent’s
attorney for the selection of Mr. Ledley as executors’ counsel.
He knew nothing about the estate and relied fully on Mr. Ledley,
who, from his perspective, was in charge of the estate. Apart
from signing the Form 706, he did not participate in filing it,
which job, he believed, was in Mr. Ledley’s hands. He never
discussed with Mr. Ledley penalties for a late-filed return. He
only discussed with Mr. Ledley whether the return was going to be
filed on time after it already was late.
Mr. Roisen’s almost complete disengagement from return
preparation is captured by his final exchange with one of
respondent’s counsel:
- 11 -
Q: So, essentially your testimony is that they [i.e.,
Mr. Ledley] took care of everything relative to
the filing of the return?
A: Absolutely. That is a hundred percent correct.
Q: And you had no participation in the filing of the
return?
A: No, except that they required my signature,
because being the executor of the will, I had to
sign it, and which I did. I had full confidence
in them.
Mr. Roisen signed the estate tax return, on August 28, 2001,
after it was more than 8 months overdue.
While we have before us Mr. Ledley’s testimony that, in late
September or early October of 2000, he advised Messrs. Roisen and
Helman to suspend their administration of the estate and he also
advised them not to file an estate tax return, we have no
testimony from Mr. Roisen that either he or Mr. Helman ever
received (or, if received, understood) that advice. At trial,
Mr. Roisen was called as a witness by petitioner. He was
examined by one of petitioner’s counsel with respect to advice
received from Mr. Ledley. He readily agreed with counsel that he
had received advice from Mr. Ledley and had followed that advice.
Counsel’s questions, however, were with respect to advice
generally; she did not ask Mr. Roisen whether he received and
followed any advice with respect to not making a timely return of
tax (i.e., filing the estate tax return on or before December 10,
2000). We infer from that failure of inquiry that Mr. Roisen’s
- 12 -
answer to that question would not have been favorable to
petitioner’s case. See Wichita Terminal Elevator Co. v.
Commissioner, 6 T.C. 1158, 1165 (1946) (“the failure of a party
to introduce evidence within his possession and which, if true,
would be favorable to him, gives rise to the presumption that if
produced it would be unfavorable”), affd. 162 F.2d 513 (10th Cir.
1947). We are not dissuaded by Mr. Ledley’s testimony from our
conclusion, expressed above, that petitioner has not shown that
Messrs. Roisen and Helman’s failure to file timely the return was
due to their reliance on advice received from Mr. Ledley.
Finally, even considering Mr. Ledley’s advice, it was not
advice that, as a matter of law, Messrs. Roisen and Helman had no
obligation to file an estate tax return by December 10, 2000. It
was simply advice that there was some risk (unspecified) with
continuing their administration of the estate (including filing
the estate tax return). Indeed, Mr. Ledley returned to
preparation of the estate tax return in late January or early
February 2001 since, he testified, it was taking a long time for
the heirs under the German will to take over the New York
proceeding.2
2
Until Messrs. Roisen and Helman were relieved of their
duties as executors, there is no question but that it was their
obligation to file the Form 706. See sec. 20.6018-2, Estate Tax
Regs. Although they may not have had complete information about
the German assets, they could have satisfied that obligation by
filing a timely tax return based on the best information
(continued...)
- 13 -
C. Conclusion
Petitioner has failed to show that, on account of reasonable
cause and not due to willful neglect, petitioner is excepted from
liability for the section 6651(a)(1) addition to tax.
IV. Conclusion
Petitioner is liable for an addition to tax pursuant to
section 6651(a)(1) for failure to file timely the Form 706.
Decision will be entered
under Rule 155.
2
(...continued)
available and later filing an amended return. See Estate of
Vriniotis v. Commissioner, 79 T.C. 298, 311 (1982).