Although most of us would consider our estate planning attorney to be superhuman, the fact of the matter is that sometimes they are unable to perform their duties. In a recent case, the district court found that the physical and mental ailments of an estate planning attorney did not provide reasonable cause for the estate to miss its tax return filing deadline, and interest and late-filing penalties were imposed on the estate.
In Thomas Freeman v. U.S., (DC PA 01/30/2012), Freeman was the executor of an estate and retained an attorney to represent the estate. The attorney managed correspondence with the IRS and assumed responsibility for ensuring that the estate’s tax returns were filed and tax payments were made. However, the attorney suffered from mental and physical ailments, unbeknownst to Freeman, causing the attorney to neglect his duties to the estate, including the filing of the estate tax return.
Freeman learned of the issue when he received a notice from the IRS for the outstanding estate tax and related penalties and interest. Under IRC § 6651(a), an addition to tax is imposed in the case of any failure to pay the tax required to be filed on its due date, unless it is shown that the failure is due to reasonable cause and not willful neglect (emphasis added).
Reg. § 301.6651-1(c)(1) provides that to meet the reasonable cause exception, a taxpayer must show that he or she exercised ordinary business care and prudence but nevertheless was unable to file the return within the prescribed period of time. Freeman argued that the attorney’s serious mental and physical ailments constituted reasonable cause to excuse the late filing. The Court disagreed, citing that the ailments may explain why the attorney couldn’t meet his obligations but did not excuse Freeman’s failure to file.
The moral of the story is that the taxpayer (in this case Freeman) bears ultimate responsibility for filing of the return. As such, the taxpayer must show he or she had reasonable cause to miss the filing deadline, not the person who was delegated the task.
So don’t feel bad if you feel the need get an update from your estate planning attorney on the status of the work, since it is ultimately your neck on the line. But it probably wouldn’t hurt to bring them a nice hot bowl of chicken noodle soup every so often to make sure they are able to stay out of a hospital bed and able to focus on your matters.
