Estate Cannot Escape Late Filing Penalty Due to Reliance on Attorney to Timely File Request for Extension

In the case of the Estate of Fuertes from the US District Court for the Northern District of Texas, the court denied the estate relief from penalties for late filing of the estate tax return. The executrix of the estate testified that she hired an attorney to handle matters related to the completion and filing of the return for her mother, Julie Fuertes. While she and the attorney discussed the need to file an estate tax return, she never inquired and the attorney never informed her of the date the return would be due.

The return was due nine months after Julie’s death, on November 23, 2006. However, the attorney did not contact the executrix regarding paying the tax due with the extension until December of 2006, and the actual extension request was filed, along with a check for $2,200,000 on December 20, 2006, 27 days after it was due. The IRS denied the extension request due to its filing after the due date of the return. The estate return was completed and filed in April 2007 and the IRS then assessed late filing penalties and interest.

The Court held that the executrix did not have reasonable cause for late filing. The court noted that to escape the penalty, the executrix had to show the late filing did not result from willful neglect and the failure was due to reasonable cause.

In this case the executrix noted that taxes were “not her bailiwick” and that she relied on the attorney to get the return filed. The attorney also testified that he was not relying on the executrix to see the extension and return were timely filed, but rather it was his responsibilty.

While a taxpayer may rely on a tax professional regarding a matter of law, the taxpayer cannot assign the responsibility to determine the date a return is due and take action to assure the return is timely filed. So the executrix could have relied on the attorney’s advice that no return was due to escape a late filing penalty, even if that advice proved to later be found to be erroneous. However, she would not be excused from her failure to seek information from the attorney on the due date, and to take independent action to see that something got filed by the due date.

This case points out that the risks raised when a preparer is put in charge of filing extensions. In this case we don’t know how the attorney managed to miss the due date, but we do note that his failure was not seen as excusing the estate from liability for the failure to file penalty. It seems likely that following this finding, the estate is going to ask for the attorney to reimburse the estate for the penalty imposed due to the late action by the attorney―a request that, if need be, the estate can likely have converted to a mandate in malpractice claim.