In Estate of Proske v. United States, Civil Action No. 09-CV-670 (DMC) (USDC D.N.J. May 25, 2010), the New Jersey District Court found that the IRS abused its discretion in disallowing the estate an extension of time to file its Federal estate tax return.
The executor of the estate failed to file an estate tax return and a request for an automatic six-month extension of time to file the return within nine months of the decedent’s date of death. The extension request was filed approximately one month after the estate tax return due date, together with payment in the amount of $1,800,000 for the estimated tax. The attachments to the Form 4768 extension request explained that the filing delay was due to the (1) the estate’s lack of sufficient liquid assets to make payment, (2) a difficulty in calculating the marital deduction and, thus, the taxable estate, and (3) a delay in obtaining appraisals for certain estate assets. During the course of litigation, the executor of the estate further explained that she was concerned that she could not certify, under penalty of perjury, the information required to be reported in Form 4768.
The IRS denied the extension request simply because the “application was filed after the due date for the return.” When the estate did file the return, the IRS assessed a $305,130 late filing penalty with interest which the estate paid but then sought to have refunded to it. The case came before the District Court upon cross-motions for summary judgment which the Court ultimately granted to the estate. In so doing, the Court noted that, pursuant to Treasury Regulation Section 20.6091-1(c), the IRS has the discretion to grant an extension of time to file a return even if an automatic extension request is not timely filed if, inter alia, it was impossible or impracticable to file a reasonably complete return when due.
The Executor argued that the estate had shown good cause for the delay which the IRS, in an abuse of its discretion, failed to consider. The Court agreed, noting that there was no record of whether or how the IRS had considered the estate’s explanation for the filing delay. As a result, the Court stated that the estate tax return is to be treated as having been timely filed and the refund request is to be granted.