A U.S. District Court in Pennsylvania held that an estate was liable for penalties and interest for the late filing of an estate tax return because the executor did not have reasonable cause for filing after the deadline.
The decedent died in April 2003 and the executor of his estate retained an attorney to represent the estate. The attorney handled all estate administration matters, including correspondence with the IRS, and assumed responsibility for ensuring that the tax returns were filed and payments made. After speaking to the attorney several times about filing the return, the executor relied on the attorney's assurances that he would handle the estate's tax obligations.
Unknown to the executor, the attorney was suffering from physical and mental ailments and never filed the estate tax return or paid the tax. The attorney was eventually discovered to have embezzled money from the estate. The executor learned of the attorney's failure to file the return and pay the estate tax in 2007 when he received a bill from the IRS for the outstanding estate tax and related penalties. The IRS assessed two penalties, one for late filing of the return (including interest on the penalty for late filing) and the second for late payment of the estate tax.
The executor argued that the attorney's physical and mental ailments constituted reasonable cause to excuse the late filing. The Court disagreed, distinguishing between a taxpayer's reliance on legal advice, the substance of which may be beyond the competence of a layperson, and his reliance on advice concerning ordinary matters such as when a return is due. Ultimately, the Court held that the duty to file a tax return is nondelegable and that the executor's reliance on an agent did not excuse the untimely filing.