Professional Tax Research Solutions from the Founder of Kleinrock. tax research
Parkers Tax Library
Accounting News Tax Analysts professional tax research software Like us on Facebook Follow us on Twitter View our profile on LinkedIn Find us on Pinterest
CPA software
Professional Tax Software
tax and accounting
Tax Research Articles Tax Research Parker's Tax Research Articles Accounting Research CPA Client Letters Tax Research Software Client Testimonials Tax Research Software tax research


Accounting Software for Accountants, CPA, Bookeepers, and Enrolled Agents

CPA Tax Software

        

 

Federal Circuit Affirms Estate's Reliance on Bad Advice Was Reasonable Up to a Point.
(Parker Tax Publishing July 2, 2014)

An estate had reasonable cause to delay filing its tax return until the decedent's spouse became a U.S. citizen so that the estate could take the marital deduction; however, there was no reasonable cause for waiting nine months after the wife became a citizen and all ancillary matters were resolved. Liftin v. U.S., 2014 PTC 276 (Fed. Cir. 6/10/14).

Morton Liftin died on March 2, 2003, and his son, John, was appointed executor of the estate. The decedent's will provided for direct bequests to, among others, his surviving spouse, Anna Liftin, who was a U.S. resident and a citizen of Bolivia at the time of the decedent's death.

Under Code Sec. 6075(a), the estate was required to file a federal estate tax return by December 2, 2003, nine months after the decedent's death. Code Sec. 6081(a) grants an extension of time of up to six months for the filing of a return, and Reg. Sec. 20.6081-1 provides that the total allowable time for filing, including extensions, is 15 months from the decedent's death. The executor hired his former law partner, John Dadakis, an estate and gift tax planning expert, to assist with the estate's federal estate tax return. Dadakis advised that the estate tax marital deduction is not available if the surviving spouse is not a U.S. citizen. However, Code Sec. 2056(d)(4) provides that, if the spouse becomes a citizen before the estate tax return is filed and has been a resident of the United States at all times after the decedent's death and before becoming a citizen, the estate may take the marital deduction.

On November 26, 2003, six days before the estate's return and taxes were due, the estate requested a six-month extension to file its return and pay the taxes due. The IRS granted the estate's request, setting a new deadline of June 2, 2004. On January 20, 2004, the estate made a tax payment of $877,300, an amount the estate estimated would be sufficient to satisfy the taxes due even if it were unable to claim the marital deduction.

Subsequently, the executor and Dadakis became aware that Mrs. Liftin intended to apply for U.S. citizenship. The executor knew, however, that Mrs. Liftin's naturalization process might not be completed before the June 2, 2004, tax return deadline. Based on his interpretation of Reg. Sec. 20.2056A-1(b), Dadakis advised the estate that its late filing of the tax return in order to claim the marital deduction would not trigger a penalty as long as the return was filed within a reasonable time after Mrs. Liftin became a naturalized U.S. citizen and other ancillary matters were completed. The executor found this advice to be reasonable, particularly because the estate had already paid more than the amount of tax the executor believed would ultimately be due.

Mrs. Liftin became a U.S. citizen on August 3, 2005. In February of 2006, the estate entered into an agreement settling certain claims Mrs. Liftin had against the estate. On May 9, 2006, the estate filed its tax return claiming the marital deduction in the amount of the value of the property passing to Mrs. Liftin and reflecting a tax due of approximately $679,000 and an overpayment of approximately $199,000.

The IRS did not contest the marital deduction, but did assess a penalty under Code Sec. 6651 of almost $170,000 for late filing and late payment. The estate filed a refund claim, which the IRS denied. After an administrative appeal, the IRS granted a partial refund of $34,000, leaving a claim of approximately $136,000. In its administrative appeal, the estate argued that the statutes and regulations related to the marital deduction provided reasonable cause for the estate's late filing.

The Court of Federal Claims divided that two-year delay into two periods the 14 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 held that the executor's reliance on Dadakis' erroneous advice was reasonable to the extent the advice was to wait until Mrs. Liftin became a U.S. citizen. That advice, the court noted, concerned a substantive question of tax law regarding the interaction between the statutes and regulations providing for the marital deduction and the statutes and regulations setting the deadline for filing the estate's return. The executor had no basis to question Dadakis' advice; moreover, the court said, there was no evidence to suggest that the executor was acting in bad faith. Requiring the executor to challenge Dadakis, the court said, would nullify the very purpose of seeking the expert's advice in the first place.

However, the Federal Claims Court concluded that once Mrs. Liftin was naturalized, there was no reasonable cause for the estate to wait an additional nine months to file its estate tax return. Because Dadakis' advice that the estate could delay filing until all the ancillary matters were resolved was not an interpretation of substantive tax law, there was no reasonable cause for the delay in filing the estate tax return. The estate appealed to the Federal Circuit.

The Federal Circuit affirmed the Federal Claims Court decision and held that the penalty assessed on the nine-month period before the May 2006 filing was appropriate. The court concluded that the executor lacked reasonable cause for the delay in filing during that period.

Though fully able to file, the court noted, the executor 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.

For a discussion of when a taxpayer has shown reasonable cause to avoid a penalty for late filing of a return, see Parker Tax ¶262,127. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Parker's Tax Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com


Professional tax research

We hope you find our professional tax research articles comprehensive and informative. Parker's Tax Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Parker Tax Research

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Parker Tax Research Library

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker's Tax Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker's Tax Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

    ®2012-2018 Parker Tax Publishing. Use of content subject to Website Terms and Conditions.

IRS Codes and Regs
Tax Court Cases IRS guidance