Estate of Liftin v. United States

United States Court of Appeals
for the Federal Circuit
______________________

MORTON LIFTIN, the Estate of,
JOHN LIFTIN, Executor,
Plaintiffs-Appellants,

v.

UNITED STATES,
Defendant-Appellee.
______________________

2013-5103
______________________

Appeal from the United States Court of Federal
Claims in No. 10-CV-0589, Judge George W. Miller.
______________________

Decided: June 10, 2014
______________________

JONATHAN E. STROUSE, Holland & Knight, LLP, of
Chicago, Illinois, argued for plaintiffs-appellants.

JOHN A. NOLET, Attorney, Tax Division, United States
Department of Justice, of Washington, DC, argued for
defendant-appellee. With him on the brief were KATHRYN
KENEALLY, Assistant Attorney General, and KENNETH L.
GREENE, Attorney.
______________________

Before NEWMAN, DYK, and TARANTO, Circuit Judges.
2 LIFTIN v. US

Opinion for the Court filed by Circuit Judge TARANTO.
Dissenting opinion filed by Circuit Judge NEWMAN.
TARANTO, Circuit Judge.
The estate of Morton Liftin and its executor, John
Liftin, appeal from a decision of the United States Court
of Federal Claims that upheld a penalty assessed by the
Internal Revenue Service under 26 U.S.C. § 6651(a)(1)
because the executor filed the estate-tax return late.
Under the statute, as the case is presented here, the full
assessed penalty was mandatory unless advice given by
counsel established reasonable cause for not filing the
return during a nine-month period from August 2005 to
May 2006. The trial court found no reasonable cause.
Estate of Liftin v. United States, 111 Fed. Cl. 13 (2013).
We affirm.
BACKGROUND
Morton Liftin died on March 2, 2003. Among his sur-
vivors was his wife, who at the time was a citizen of
Bolivia and not of the United States. John Liftin, the
decedent’s son, became the executor of the estate.
Although the executor is an attorney, he obtained as-
sistance in administering the estate by retaining his
former law partner, who focused in his practice on provid-
ing “private wealth services and tax planning.” J.A. 134.
It is undisputed that the executor needed to file a federal
estate-tax return, Form 706, with the Internal Revenue
Service. See 26 U.S.C. § 6018(a). Under 26 U.S.C.
§ 6075(a), the general rule is that such returns “shall be
filed within nine months after the date of the decedent’s
death”—here, by December 2, 2003. The statute author-
izes the IRS to grant an extension, but strictly limits its
length: for taxpayers like the Liftin estate, “no such
extension shall be for more than 6 months.” 26 U.S.C.
§ 6081(a). An IRS regulation provides that the estate, if it
asks on time, is entitled to “an automatic six-month
LIFTIN v. US 3

extension of time beyond the date prescribed in section
6075(a) to file Form 706.” 26 C.F.R. § 20.6081-1(b). On
November 26, 2003, the executor timely sought a six-
month extension both to file and to pay, and the IRS
granted the extension on January 16, 2004. The new
deadline to file the estate-tax return (and to pay the
estate tax) was June 2, 2004, with no statutory or regula-
tory authorization for a further extension.
In preparing to file the estate-tax return, the executor
and his specialist counsel discussed two uncertainties
material to calculating the proper amount of tax due. The
principal one was whether and when Mrs. Liftin, the
decedent’s widow, would become a United States citizen.
A executor, in calculating the value of an estate subject to
the estate tax, may deduct the value of property that
passes to a surviving spouse, but the general precondition
for that marital deduction is that the surviving spouse be
a citizen of the United States. 26 U.S.C. § 2056(a), (d)(1).
A “[s]pecial rule,” however, also permits the deduction if
“(A) the surviving spouse of the decedent becomes a
citizen of the United States before the day on which the
return of the tax imposed by this chapter is made, and (B)
such spouse was a resident of the United States at all
times after the date of the death of the decedent and
before becoming a citizen of the United States.” Id.
§ 2056(d)(4). Under that provision, specialist counsel
advised, the estate could not take the marital deduction
unless Mrs. Liftin became a United States citizen before
the estate actually filed its return. Mrs. Liftin agreed to
apply for United States citizenship, and in February 2004,
she contacted a law firm to begin the process.
A second uncertainty affected the estate’s preparation
for its tax filing. The estate was engaged in litigation
with the decedent’s widow relating to her rights under a
prenuptial agreement and the decedent’s will. The par-
ties and the Court of Federal Claims have referred to that
litigation as “ancillary matters.”
4 LIFTIN v. US

Neither uncertainty had been resolved as of June 2,
2004, the extended due date for paying the tax and for
filing the tax return. By then, there was no issue regard-
ing timeliness of payment. In January 2004—which was
before the extended June 2004 payment and filing dead-
line, but after the original, un-extended December 2003
filing deadline—the executor had made an estimated
payment to the IRS of $877,300, an amount sufficient to
cover the taxes due even if the estate could not claim the
marital deduction. J.A. 577. But timely filing of the tax
return was an additional, separate obligation. Indeed, the
executor did not argue in this case that the payment in
January 2004 altered the deadline for filing the return or
reduced the penalty for late filing. See note 1, infra.
Specialist counsel advised the executor that “a late
Form 706 could be filed after the extended due date.” J.A.
135. In his declaration in this litigation recounting his
advice, he stated that he “[b]ased [the advice] on [his]
review and analysis of” a regulation that concerns citi-
zenship and the marital deduction. Id. He reasoned that
“the Regulations allowed for a late return to be filed in
order for the [e]state to take advantage of the full marital
deduction.” Id. Counsel’s declaration does not recite any
basis for delaying the filing beyond the resolution of the
citizenship question, but counsel advised the executor
that filing could await not only the citizenship decision
but also resolution of “other ancillary settlement issues.”
J.A. 136. See also J.A. 231-32 (declaration of John Liftin).
The estate does not argue here, or cite to any evidence,
that specialist counsel, before June 2004 or later, con-
veyed to the executor any explanation for the latter part
of the advice, i.e., for delaying the filing of the return past
the citizenship decision. Relying on counsel’s advice that
he could wait, the executor did not file Form 706 by June
2, 2004.
Several months after the June 2004 filing deadline
had passed, the IRS inquired why the executor had not
LIFTIN v. US 5

filed an estate-tax return. In a letter to the IRS on behalf
of the estate, specialist counsel responded that “the Dece-
dent’s estate intends to delay the filing of its [F]orm 706
until Mrs. Liftin has obtained United States citizenship,”
adding: “we will, of course, file the Decedent’s Form 706
as soon as the estate is informed of a determination”
regarding her application. J.A. 485. The letter, mention-
ing only the application for naturalization, said nothing
about a need to resolve pending litigation. The IRS did
not reply to the letter.
The next summer, on August 3, 2005, Mrs. Liftin be-
came a naturalized United States citizen. The executor,
however, did not file the estate-tax return as soon as he
was informed of the naturalization. Summer turned to
fall, and fall to winter. On February 16, 2006, Mrs. Liftin
and the estate settled their dispute over “ancillary mat-
ters.” Still the executor did not file the return immediate-
ly. Not until May 9, 2006, did the executor finally file the
return. The filing occurred twenty-three months after the
extended June 2004 due date and nine months after Mrs.
Liftin became a naturalized United States citizen.
The return claimed a marital deduction for the prop-
erty passed to Mrs. Liftin. On that basis, it stated a tax
liability of $678,572.25. J.A. 309. According to the re-
turn, therefore, the estate’s January 2004 estimated
payment of $877,300 exceeded the tax liability, entitling
the estate to a refund of $198,727.75. Id.
The IRS disagreed, but not with the calculation of tax
liability. Rather, it assessed a $169,643.06 late-filing
penalty under 26 U.S.C. § 6651(a)(1). After an internal
agency appeal, the IRS reduced the penalty to
$135,714.45—equal to 25 percent of the tax liability (5
percent for each month the return was late, capped at five
months).
In September 2010, the executor, on behalf of the es-
tate, sought recovery of the $135,714.45 late-filing penalty
6 LIFTIN v. US

by initiating this action in the Court of Federal Claims
under 26 U.S.C. § 7422(a) and 28 U.S.C. §§ 1346(a)(1),
1491(a). The parties eventually filed cross-motions for
summary judgment. They framed the dispositive issue as
whether the executor’s reliance on the advice of specialist
counsel provided reasonable cause for not filing the es-
tate-tax return until May 2006, almost two years after the
extended due date of June 2, 2004.
In granting summary judgment for the government,
the Court of Federal Claims divided that two-year delay
into two periods—the fourteen months up to the August
2005 grant of U.S. citizenship to Mrs. Liftin, and the nine
months from then until the May 2006 filing. The court
concluded, first, that “the [e]state has demonstrated that
its failure to file its estate tax return during the fourteen
months after the extended deadline but before Mrs. Liftin
became a U.S. citizen was due to reasonable cause.”
Liftin, 111 Fed. Cl. at 18. The court deemed it reasonable
in the circumstances for the executor to rely on counsel’s
specifically explained advice that filing could wait until
the citizenship grant (which had to precede filing for the
marital deduction to be available). Id. at 20-22.
The court drew the opposite conclusion for the re-
maining nine months: the “delay in filing after Mrs. Liftin
became a U.S. citizen was not due to reasonable cause.”
Id. The court found no reasonable cause in the executor’s
reliance on counsel’s advice that filing could be delayed
past the citizenship determination—advice that the
executor did not argue had been separately explained to
him at the time and for which the current explanation
was simply that final accurate information would not be
available until the “ancillary matters” were resolved. Id.
at 22-23. Because the “nine-month delay without reason-
able cause was sufficient to subject [the estate] to the
maximum late-filing penalty,” a maximum reached after
only five months’ of delay without reasonable cause, the
Court of Federal Claims granted summary judgment that
LIFTIN v. US 7

the IRS correctly assessed the entire late-filing penalty
under section 6651(a)(1). Id. at 23.
After the denial of reconsideration, id. at 23-24, the
estate timely appealed. We have jurisdiction under 28
U.S.C. § 1295(a)(3). We review the grant of summary
judgment by the Court of Federal Claims without defer-
ence. Am. Capital Corp. v. FDIC, 472 F.3d 859, 865 (Fed.
Cir. 2006).
DISCUSSION
The Internal Revenue Code establishes a strict penal-
ty regime for the late filing of estate-tax returns, applica-
ble even when full payment is made on time. For each
month that a federal estate-tax return is late, the IRS
must impose a penalty of five percent of the tax due (up to
a limit of 25 percent) “unless it is shown that [the failure
to file on time] is due to reasonable cause and not due to
willful neglect.” 26 U.S.C. § 6651(a)(1); see United States
v. Boyle, 469 U.S. 241, 244 (1985). Because the aggregate
penalty may not exceed 25 percent of the tax due, it takes
only five months to reach the maximum penalty. Nine
months elapsed after Mrs. Liftin became a citizen in
August 2005 before the executor filed an estate-tax return
in May 2006. We conclude that the executor lacked
reasonable cause for the delay in filing during that period.
Though fully able to file, he simply relied on the advice of
counsel that he should wait to file until the resolution of
various “ancillary” matters—advice for which he obtained
no explanation and that rested on the unreasonable
assumption that incompleteness of information justified
delay in filing. Our conclusion as to this nine-month
period supports the full penalty assessed, so we need not
address the period before August 2005. 1

1 Neither in the trial court nor in its appeal to this
court did the estate dispute the IRS’s use of the full tax
8 LIFTIN v. US

The Supreme Court addressed aspects of the “reason-
able cause” requirement in Boyle. That case involved a
taxpayer’s simple delegation of the filing task to counsel,
which the Court held was not reasonable. 469 U.S. at
251-52. In the course of so holding, the Court noted
authorities that had found reasonable cause for a taxpay-
er to rely on counsel’s advice that no return need be filed
at all, which typically is a matter not of dates but of
whether threshold requirements for filing are met. Id. at
250. The Court identified as a distinct issue the question
of when legal advice about the due date of a return consti-
tutes reasonable cause, noted that courts had drawn
disparate conclusions about that issue, and expressly
declined to address it. Id. at 251 n.9.

due as the base to be multiplied by 5 percent per month,
without subtracting the amount paid to the IRS in Janu-
ary 2004—an amount that, if subtracted, would eliminate
the penalty because it exceeds the tax ultimately found to
be due. 26 U.S.C. § 6651(b)(1) directs the IRS to subtract
from the base “the amount of any part of the tax which is
paid on or before the date prescribed for payment of the
tax.” The IRS found that directive inapplicable to the
January 2004 payment—because it was made after the
original, un-extended December 2003 due date, though
before the extended June 2004 due date. It relied on 26
U.S.C. § 6151(c), which states that certain language in
Title 26 referring to a date fixed for payment should be
read to refer to “the last day fixed for such payment
(determined without regard to any extension of time for
paying the tax).” (Emphasis added.) The panel sua sponte
requested and received supplemental briefs on the cor-
rectness of the IRS’s view. The panel majority now de-
clines to address the question. We see insufficient reason,
in the circumstances here, to depart from the important
rules requiring timely presentation and development of
issues.
LIFTIN v. US 9

Today we address one aspect of that issue. We con-
clude, in agreement with the Court of Federal Claims,
that the legal advice given to the executor on the timing of
the estate’s return did not supply reasonable cause for the
post-August 2005 delay, because that advice—which in
this case was unexplained to the executor—rested on an
assumption that is not legally reasonable. That conclu-
sion requires affirmance of the summary judgment up-
holding the penalty imposed.
Our focus is on the basis—rather, the lack of a legally
reasonable basis—for the advice. We begin with an IRS
regulation, 26 C.F.R. § 1.6664-4(c), that, though not
directly applicable, addresses an issue closely related to
the issue of “reasonable cause” under 26 U.S.C.
§ 6651(a)(1) in this case. Under 26 U.S.C. § 6662(a),
penalties are mandated for certain underpayments of tax,
but the penalties are eliminated by 26 U.S.C. § 6664(c)
where the taxpayer has “reasonable cause” for the under-
payment. The IRS has promulgated a regulation that
addresses “reasonable cause” under that provision. 26
C.F.R. § 1.6664-4. One part of that regulation says that,
in order for a taxpayer’s reliance on the advice of counsel
(or other specialized professional) to constitute “reasona-
ble cause,” the “advice must not be based on unreasonable
factual or legal assumptions.” Id. § 1.6664-4(c)(1)(ii).
The closest regulatory articulation of what constitutes
“reasonable cause” thus excludes advice that depends on
legal assumptions that are outside the range of the rea-
sonable. Even if all factual assumptions are correct, the
regulation bars a defense of reliance on professional
advice if the advice depends on legal assumptions that are
simply unreasonable. This approach looks at the sub-
stance of the advice offered, not just the qualifications of
the adviser, and demands that it rise above a threshold
level of reasonableness (though, by assumption, the
advice was incorrect). We so recognized when we ob-
served that, under the regulation, “[t]he reasonableness of
10 LIFTIN v. US

any reliance turns on the quality and objectivity of the
advice.” Stobie Creek Invs. LLC v. United States, 608 F.3d
1366, 1381 (Fed. Cir. 2010); see also Long Term Capital
Holdings LP v. United States, 330 F. Supp. 2d 122, 209-11
(D. Conn. 2004), aff’d, 150 F. App’x 40 (2d Cir. 2005).
In applying the “reasonable cause” provision of section
6651(a)(1) to the claimed reliance on legal advice here, we
think it appropriate to borrow the relevant component of
the IRS’s formal regulatory implementation of “reasona-
ble cause” in the closely analogous setting of section
6664(c)(1). The statutory language of “reasonable cause”
is the same. That language readily permits an interpre-
tation that asks if the basis for the advice clears a thresh-
old of reasonableness. There is no contrary settled legal
meaning, as indicated by the disparate authorities about
“reasonable cause” noted by the Supreme Court in Boyle,
469 U.S. at 251 n.9. And the IRS regulation that directly
applies to section 6651, i.e., 26 C.F.R. § 301.6651-1(c),
contains nothing addressed to reliance on counsel’s advice
about filing that runs counter to the standard set out in
26 C.F.R. § 1.6664-4(c)(1)(ii).
Focusing on the objective reasonableness of the advice
in the present context makes good sense, given the likely
practical consequences of doing otherwise. If legal advice
eliminated the statutory penalty even when it rested on
unreasonable legal assumptions, there would be a sub-
stantial risk of abuse by taxpayers—a risk that taxpayers
would secure baseless advice as protection against penal-
ties. We have recognized the danger that taxpayers will
be tempted to seek, and would be able to secure, advice
that is “too good to be true,” i.e., based on assumptions
that are simply unreasonable. Stobie, 608 F.3d at 1383.
After all, it is quite unlikely that the lawyer will be penal-
ized for giving such advice; and if the advice excuses the
IRS penalty against the taxpayer, the taxpayer will have
suffered no harm on which to base a claim against the
lawyer for bad advice. Boyle v. United States, 710 F.2d
LIFTIN v. US 11

1251, 1252 (7th Cir. 1983) (Posner, J., dissenting), rev’d,
469 U.S. 241 (1985). 2
For that reason, there is a substantial risk of weaken-
ing the threat of penalty—whose imposition is mandatory
unless there is reasonable cause, 26 U.S.C. § 6551(a)(1)—
that Congress deemed important to the proper function-
ing of the tax system. The result would be to harm the
United States’ interest in proper application of its tax
statutes, which insist on strict filing dates for returns. As
the Supreme Court said in Boyle, the United States
“should not have to assume the burden” of “standard[s]
[that] would risk encouraging a lax attitude toward filing
dates.” 469 U.S. at 249.
At the same time, “one does not have to be a tax ex-
pert to know that tax returns have fixed filing dates”—
that “tax returns imply deadlines.” Id. at 251. And under
an objective-reasonableness standard, the burden of a
penalty imposed directly on the taxpayer who neverthe-
less errs by following substandard legal advice may not
ultimately fall on the taxpayer. Counsel’s advice that is
not just incorrect but objectively unreasonable would

2 In Jerman v. Carlisle, McNellie, Rini, Kramer &
Ulrich LPA, 559 U.S. 573 (2010), the Supreme Court
expressed a related concern in addressing what it viewed
as the dissent’s approach to a statutory provision provid-
ing immunity for debt collectors from certain statutory
violations. It worried that, under that approach,
“nonlawyer debt collectors could obtain blanket immunity
for mistaken interpretations of the [statute] simply by
seeking the advice of legal counsel.” Id. at 602. In re-
sponse, apparently recognizing the same concern, the
dissent clarified that its approach protected only “a debt
collector who relies in good faith on the reasonable
[though mistaken] advice of counsel.” Id. at 620 (Kenne-
dy, J., dissenting) (emphasis added).
12 LIFTIN v. US

often come within the usual standards for imposing
malpractice liability when it causes harm to the client.
See, e.g., Smith v. Lewis, 13 Cal. 3d 349, 360, 530 P.2d
589, 596 (1975) (legal malpractice liability where attor-
ney’s advice did not withstand even “minimal research
into either hornbook or case law”); Dawson v. Toledano,
109 Cal. App. 4th 387, 397, 134 Cal. Rptr. 2d 689, 696
(2003) (“[T]he crucial inquiry is whether [the attorney’s]
advice was so legally deficient when it was given that he
may be found to have failed to use ‘such skill, prudence,
and diligence as lawyers of ordinary skill and capacity
commonly possess and exercise.’”); 3 R. MALLEN, J. SMITH,
& A. RHODES, LEGAL MALPRACTICE § 24:5 (2014 ed.)
(attorney liable for loss caused by client’s reliance on
negligent advice; “the issue is not whether lawyer’s ‘ad-
vice and conclusions were legally correct, but whether
they were reasonable’”) (internal citation omitted). To
that extent, under an objective-reasonableness standard,
the concrete responsibility for unreasonable advice that
leads to a late filing and consequent penalty would fall on
the adviser, while the United States is broadly protected
by the maintenance of the strong incentive for timely
filing provided by the threat of penalty.
A recent decision of the Ninth Circuit supports apply-
ing an objective-reasonableness standard to section
6651(a)(1). In Knappe v. United States, 713 F.3d 1164
(9th Cir. 2013), the executor of an estate—relying on the
advice of a tax professional, an “expert accountant”—
mistakenly believed that it was possible to request a 12-
month extension of the filing deadline and, therefore, did
not file by the actual due date, leading the IRS to impose
a penalty under section 6651(a)(1). The Ninth Circuit,
after examining the relevant IRS form and section of the
Internal Revenue Code, concluded that “[t]he deadlines
here brook no debate.” Id. at 1173. The question of
whether “an extension was available was not a ‘debatable’
one,” and “for that reason,” the executor “cannot show
LIFTIN v. US 13

reasonable cause to excuse his late filing,” despite the
executor’s reliance on the (ultimately mistaken) advice of
a tax professional. Id. That aspect of the Ninth Circuit
decision, however it relates to Knappe’s discussion of “the
line between substantive and nonsubstantive advice,” id.,
supports the application of an objective-reasonableness
standard in assessing reliance on counsel’s advice as an
asserted ground of “reasonable cause” for a late filing of
an estate-tax return.
What constitutes a sufficiently plausible grounding in
tax law should depend on the complexity of the matter.
But this case is at the simple end of the spectrum of
complexity. The taxpayer has a “fixed and clear” duty “to
ascertain the statutory deadline and then to meet that
deadline.” Boyle, 469 U.S. at 246. The Court of Federal
Claims found no support in tax law for special counsel’s
advice that, even after Mrs. Liftin became a naturalized
United States citizen in August 2005, the estate could
continue to wait until the other “ancillary matters” were
resolved. As explained in the trial court, the advice rested
entirely on the assumption that the return could be
delayed until the ancillary matters were resolved because
a fully “accurate” return could not be filed until then. The
trial court held that there was no basis in tax law for the
assumption that incomplete information justified delay in
filing the estate-tax return. Liftin, 111 Fed. Cl. at 22 n.9
(“the law is clear that the need to file an accurate return
cannot constitute reasonable cause for late filing”). The
executor here does not defend that assumption’s reasona-
bleness.
We likewise conclude that the assumption is simply
unreasonable. An IRS regulation, specifically addressing
the possibility of incomplete information, declares that
“[a] return as complete as possible must be filed before
the expiration of the extension period,” adding that, while
the return may not be “amended” once the extension
period ends, “supplemental information may subsequently
14 LIFTIN v. US

be filed that may result in a finally determined tax differ-
ent from the amount shown as the tax on the return.” 26
C.F.R. § 20.6081-1(d). And courts have long rejected
assertions that incompleteness of information excused the
missing of a filing deadline, for estate-tax and other
returns. E.g., Ferguson v. Comm’r, 568 F.3d 498, 501 (5th
Cir. 2009) (upholding Tax Court rejection of such asser-
tion); In re Craddock, 149 F.3d 1249, 1257 (10th Cir.
1998) (rejecting excuse and explaining that “[a] tax return
does not have to be completely accurate, but must be
based on the best information available”); Estate of Young
v. United States, No. 11-11829, 2012 WL 6585327, at *3
(D. Mass. Dec. 17, 2012) (“[T]he Estate has an obligation
to file a timely return with the best available information.
It cannot claim reasonable cause based on advice that it
was necessary to wait for complete information before
filing a return.”); Russell v. Comm’r, 101 T.C.M. (CCH)
1363, 2011 WL 1314673, at *8 (2011); Estate of Cederloff
v. United States, No. 08-2863, 2010 WL 3548901, at *3-4
(D. Md. Sept. 10, 2010); Jacobson v. Comm’r, 86 T.C.M.
(CCH) 204, 2003 WL 21752458, at *2 (2003); Estate of
Maltaman v. Comm’r, 73 T.C.M. (CCH) 2162, 1997 WL
90606, at *5 (1997); Crocker v. Comm’r, 92 T.C. 899, 913-
14 (1989); Estate of Vriniotis v. Comm’r, 79 T.C. 298, 311
(1982); Duttenhofer v. Comm’r, 49 T.C. 200, 206-07 (1967),
aff’d, 410 F.2d 302 (6th Cir. 1969). Whatever an objec-
tive-reasonableness standard might mean in other cir-
cumstances, it is not met by the advice in this case that
the executor could wait until various “ancillary matters”
were resolved, even after Mrs. Liftin obtained citizenship.
In the circumstances of this case, the executor lacked
reasonable cause under section 6651(a)(1) to rely on the
filing-deadline advice of counsel.
CONCLUSION
For the foregoing reasons, we affirm the judgment of
the Court of Federal Claims.
LIFTIN v. US 15

No costs.
AFFIRMED
 United States Court of Appeals
for the Federal Circuit
______________________

MORTON LIFTIN, the Estate of,
JOHN LIFTIN, Executor,
Plaintiffs-Appellants,

v.

UNITED STATES,
Defendant-Appellee.
______________________

2013-5103
______________________

Appeal from the United States Court of Federal
Claims in No. 10-CV-0589, Judge George W. Miller.
______________________

NEWMAN, Circuit Judge, dissenting.
The Liftin Estate tax return was filed late, after a de-
lay resulting from the time required for Mrs. Liftin to
obtain United States citizenship and to resolve other
estate issues. However, the estimated estate tax of
$877,300 had been paid two years earlier, as provided by
statute, before any late-filing penalty could accrue.
Nonetheless, the IRS levied the same 25% late-filing
penalty as if no payment of estimated tax had been made.
My colleagues on this panel agree with this outcome.
With all respect to my colleagues, they are incorrect.
The role of the estimated tax payment is to avert the
imposition of a penalty. No statute or regulation provides
that the nonpayment penalty accrues for the period after
2 LIFTIN v. US

full payment of the estimated tax. The statute explicitly
bars such assessment. It is incongruous to levy a penalty
for late payment of a tax that had been timely and fully
paid two years earlier, before the penalty period accrued.
Nonetheless, my colleagues hold that the 25% penalty
is incurred as if no estimated tax had been paid. On
January 16, 2004 the Estate paid (overpaid) an estimated
tax of $877,300. 1 Also on January 16, 2004, the IRS
responded to the Estate’s November 2003 written request
and notified the Estate that the time for filing the return
was extended to June 2, 2004; the time for paying the tax
was also extended to June 2, 2004.
Mrs. Liftin duly proceeded with the naturalization
process, and the record states that there were disputes
arising from a prenuptial agreement. In October 2004,
the IRS inquired as to why the Estate had not filed its tax
return, and tax counsel responded that the Estate
planned to delay the filing until Mrs. Liftin became a
naturalized citizen so that it could claim the marital
deduction, as provided by statute. The IRS did not re-
spond to this letter.

1 The Estate’s tax counsel calculated the estimated
tax in three ways. The first calculation assumed that the
Estate would elect I.R.C. §2056A’s qualified domestic
trust (QDOT) provisions. The second calculation assumed
that Mrs. Liftin would become a naturalized U.S. citizen
prior to filing the return, I.R.C. §2056(d)(4), such that the
Estate could claim a marital deduction under I.R.C.
§2056(a). The third calculation assumed the Estate could
claim neither the benefit of the QDOT provisions nor a
marital deduction. The Estate paid its estimated tax to
the IRS on January 16, 2004 based on the third (the
highest) estimated tax calculation.
LIFTIN v. US 3

On May 9, 2006, the Estate filed its estate-tax return,
reporting a tax of $678,572.25, citing the estimated tax
payment of $877,300, stating that no tax was due and
requesting refund of the overpayment of $198,727.75.
The IRS then assessed a late-filing penalty of
$169,643.06, measured as 25% of the reported tax. The
Estate filed an administrative “Claim for Refund and
Request for Abatement” of the penalty. The IRS abated
and refunded $33,928.61, leaving a penalty assessment in
the amount of $135,714.45.
On appeal to the Court of Federal Claims, the Estate
pointed out that the entire tax liability was met by the
estimated tax payment. The court sustained the penalty,
finding that although the delay in filing during the citi-
zenship process could be excused, the delay while the
“ancillary matters” relating to the prenuptial agreement
were resolved was not excused. The court held that it was
irrelevant that the full estimated tax had been timely
paid over two years earlier, and that the penalty was
appropriate.
DISCUSSION
Although in this case the statute is sufficiently clear,
if ambiguity arises in interpretation of the tax law, the
Supreme Court has established that tax laws are con-
strued “most strongly against the government and in
favor of the citizen”:
In the interpretation of statutes levying taxes it is
the established rule not to extend their provision,
by implication, beyond the clear import of the lan-
guage used, or to enlarge their operations so as to
embrace matters not specifically pointed out. In
case of doubt, they are construed most strongly
against the government, and in favor of the citi-
zen.
Gould v. Gould, 245 U.S. 151, 153 (1917).
4 LIFTIN v. US

This rule takes additional force when interpreting a
tax penalty statute: “We are here concerned with a taxing
Act which imposes a penalty. The law is settled that
‘penal statutes are to be construed strictly,’ and that one
‘is not to be subjected to a penalty unless the words of the
statute plainly impose it.’” Comm’r v. Acker, 361 U.S. 87,
91 (1959) (quoting FCC v. Am. Broad. Co., 347 U.S. 284,
296 (1954); Keppel v. Tiffin Sav. Bank, 197 U.S. 356, 362
(1905)).
The Estate paid estimated tax in excess of its actual
tax liability, and so there was no unpaid tax. And yet, my
colleagues hold that the penalty is incurred, whether or
not the full tax was paid two years earlier. The penalty
statute contravenes this holding.
The penalty statute contains several subparts. The
government’s brief initially cited only I.R.C. §6651(a)(1):
§6651(a)(1) In the case of failure—
to file any return . . . on the date prescribed
therefor (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, there shall be added to the amount
required to be shown as tax on such return 5 per-
cent of the amount of such tax if the failure is for
not more than 1 month, with an additional 5 per-
cent for each additional month or fraction thereof
during which such failure continues, not exceed-
ing 25 percent in the aggregate.
The next statutory provision is directed to the penalty of
subsection (a)(1) when the taxpayer has paid all or some
of the tax liability before the due date for the return:
§6651(b)(1) Penalty imposed on net amount due.—
For purposes of—
LIFTIN v. US 5

subsection (a)(1), the amount of tax required to be
shown on the return shall be reduced by the
amount of any part of the tax which is paid on or
before the date prescribed for payment of the tax
and by the amount of any credit against the tax
which may be claimed on the return.
Although the IRS states that the penalty is for late filing,
not for late payment, the statute is directed to “the
amount of tax required to be shown on the return”, which
is “no amount” when the tax has been paid as estimated
tax, as illustrated in James v. Comm’r, 40 T.C.M. (CCH)
45 (1980):
The imposition of the section 6651(a)(1) penalty is
upon the amount required to be shown as tax on
such return. Consequently, if there is no amount
required to be shown as tax on the return (as in
some cases of excess withholdings, estimated tax
payments, or net operating loss carryovers), then
there can be no penalty.
(emphasis added). Further elaboration is provided in
Mischel v. Comm’r, 74 T.C.M. (CCH) 253 (1997), the Tax
Court explaining that when no tax is due, and thus no
amount required to be shown on the return, there is no
penalty for additional tax, for “[t]he addition is based on
the amount required to be shown as tax on the return.”
That is the situation here. The Estate paid “estimat-
ed tax payments” in excess of its actual tax liability,
whereby “there can be no penalty.” James, 40 T.C.M.
(CCH) at 45. The Estate’s tax return shows an overpay-
ment of $198,727.75 and thus a negative balance due; the
amount of tax and overpayment are not disputed. Apply-
ing §6651(b)(1), the penalty calculated pursuant to
§6651(a)(1) is zero because the “amount required to be
shown as tax on such return” was zero.
6 LIFTIN v. US

The government argues that §6651(b)(1) should be in-
terpreted to exclude all extensions, even when there is an
explicit extension for payment of the tax. Thus the gov-
ernment argues that because the Estate’s estimated tax
payment was made after the original due date,
§6651(b)(1) does not apply. Such a statutory interpreta-
tion is without support. I further observe that even on
this interpretation, the Estate paid its estimated tax only
a few days after the initial unextended due date, whereas
the 25% penalty is calculated on a minimum five months
of non-payment.
The IRS argues, and my colleagues agree, that the full
penalty is due as if no estimated tax at all had been paid
at any time. Such statutory interpretation renders mean-
ingless the provisions for extension of time as well as the
purpose of permitting and requiring estimated payments
although the tax return is filed later. It cannot be correct
to interpret the statute as imposing a penalty of 25% of
the tax that was already paid. This position contradicts
the legislative record for §6651, for both the House and
Senate Reports explain that the penalty is based on the
tax due on the return, not the amount previously estimat-
ed and paid:
Subsection (b) of this section [6651] provides that
the addition to the tax will be computed on the net
amount due on the return rather than on the
gross amount of the tax required to be shown on
the return. This provision is important in the
case of income tax where a large part of the
amount of the tax shown on the return may have
been prepaid through declaration of the estimated
tax or through income tax withholdings.
H.R. Rep. No. 83-1337, at 419 (1954); S. Rep. No. 83-1635,
at 591 (1954).
Thus §6651(b) bars a penalty for late-filing when the
tax was “prepaid through declaration of the estimated
LIFTIN v. US 7

tax,” id. Here the IRS was already in possession of the
entire tax owed, plus a large overpayment. The Supreme
Court’s statement in Gould v. Gould warrants repetition:
“In case of doubt, [statutes levying taxes] are construed
most strongly against the government, and in favor of the
citizen.” 245 U.S. at 153.
From my colleagues’ contrary ruling, I respectfully
dissent.