Estate of Hinz v. Commissioner
| Decision Date | 06 January 2000 |
| Docket Number | Docket No. 8194-97. |
| Citation | 79 T.C.M. 1289 |
| Parties | Estate of Ethel Josephine Spowart Hinz, Deceased, Lester F. Hinz, Jr., Executor v. Commissioner. |
| Court | U.S. Tax Court |
Francis Burton Doyle, for the petitioner. G. Michelle Ferreira, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined a deficiency in Federal estate tax and additions to tax under sections 6651(a)(1)1 () and 6651(a)(2) () against petitioner in the amounts of $1,732,348, $530,094, and $297,523,2 respectively. By amendment to petition, petitioner claims an overpayment of estate tax. After concessions by both sides, the issues for decision are as follows:
(1) What the fair market values were of four of decedent's real properties on the date of decedent's death;
(2) whether petitioner is liable for an addition to tax under section 6651(a)(1); and
(3) whether petitioner is liable for an addition to tax under section 6651(a)(2).
Some of the facts have been stipulated; the stipulations and the stipulated exhibits are incorporated herein by this reference.3
When the petition was filed in the instant case, both the place for the estate's administration and the executor's legal residence were in Saratoga, California, and the estate's probate administration was in the Superior Court for Santa Clara County, California.
Chronology Decedent died on May 4, 1992. At the time of her death, decedent owned several real properties located in and around Santa Clara, California.
In her holographic will, dated November 29, 1991, decedent named her son, Lester F. Hinz, Jr. (hereinafter sometimes referred to as Hinz), as sole heir and executor of her estate. This was about the time that decendent's daughter died. Hinz and decedent's daughter were decedent's only children. In May 1992, Hinz engaged William R. Christy (hereinafter sometimes referred to as Christy) to represent the estate and, as part of that representation, to "do the federal estate tax return". Christy had been "the family attorney" for about 40 years. When Hinz hired Christy, Hinz knew the estate tax return was due 9 months from the date of decedent's death.
Christy had been licensed to practice law in California since 1949 — he had considerable experience handling probate and estate matters, but had filed only 12 to 15 Federal estate tax returns. The record does not indicate whether Christy had done any work in connection with the estates of decedent's husband, who died in 1960, or decedent's daughter.
On June 11, 1992, Christy filed with the Superior Court for Santa Clara County a petition on Hinz's behalf for the probate of decedent's estate. The petition for probate listed seven real properties4 and estimated their aggregate value as $1,100,000. The $1,100,000 amount was based on the Santa Clara County Assessor's records. On July 29, 1992, the Superior Court appointed Hinz as executor of decedent's estate. Before the estate tax return was due, Christy advised Hinz that the estate could receive an extension of time in which to file its estate tax return. Hinz did not ask Christy what the extended due date would be.
On January 28, 1993, Christy timely filed a Form 4768, asking that the due date for filing the estate tax return be extended by 5 months and 27 days to July 31, 1993, and that the due date for paying the estate tax be extended by 10 months and 27 days to December 31, 1993.
Christy attached the following statement to the Form 4768:
STATEMENT RE EXTENSION OF TIME TO FILE FORM 706
It is impossible to file a reasonably complete return by February, 1993, because of difficultly in gathering information necessary to identify and appraise decedent's real properties. It is anticipated from work already done by counsel, probate appraisers, and title company, that appraisals will be done and an accurate return filed by July 1, 1993.
The estate's real properties appear to consist of 7 parcels [see supra note 4] in Santa Clara County, California. Deferred maintenance and hidden defects affecting market value need to be explored.
On February 11, 1993, respondent approved a 6-month extension for filing, to August 4, 1993, and a 1-year extension for paying, to February 4, 1994. Table 1 shows the original due dates, the extended due dates requested by Christy, and the extended due dates approved by respondent.
Table 1
Original Requested Approved
Tax return due date ............................ 02/04/93 07/31/93 08/04/93
Payment due date ............................... 02/04/93 12/31/93 02/04/94
On the Form 4768 Christy had caused to be typed in the "Extension date requested" boxes of part II (extension for filing) and part III (extension for paying) "7-31-93" and "12-31-93", respectively. On the returned Form 4768 in light red ink (1) lines were drawn through "7" and "31" in part II and these numbers were replaced by "8" and "4", respectively, and (2) lines were drawn through "12", "31", and "93" in part III and these numbers were replaced by "2", "4" and "94", respectively. Also, on the returned Form 4768, part V, (1) item 1 (extension for filing) is shown as approved and there is penciled in "080493", and (2) item 2 (extension for paying) is shown as approved and there is penciled in "020494". The heading of part V is printed in boldface type as follows: "Notice to Applicant — To be completed by Internal Revenue Service". Finally, on the returned Form 4768, part V, item 1 (extension for filing), there is stamped in faint blue ink the following: THE MAXIMUM EXTENSION ALLOWED FOR FILING IS 6 MONTHS. On the Form 4768, part II (extension for filing), there are not any marks on the "93" that Christy had typed in as part of the "7-31-93" requested extension.
Christy interpreted the returned Form 4768 as having extended the due date for filing to February 4, 1994. In late 1993 (after August 4, 1993) or early 1994 Christy told Hinz that he had received an extension of time until February 4, 1994, to file the estate tax return, and reminded Hinz that appraisals were needed for the real estate. This was the first time that Hinz learned what Christy thought was the extended due date for the tax return. Hinz had not asked Christy what the extended due date was. By then, Hinz and Christy decided that they had little choice but to use the probate referee's figures. However, Christy and Hinz thought those amounts were too high, so Christy reduced the probate referee's figures by 25 percent. See infra table 2, line 1, for the values shown on the estate tax return. At Christy's suggestion, Hinz agreed to elect under section 6166 to pay the estate tax in installments. Christy prepared the estate tax return and signed it as return preparer.
Hinz and Christy executed the estate tax return on February 1, 1994. Neither the returned Form 4768 nor a copy thereof was attached to the tax return when Hinz signed it. Hinz first saw the returned Form 4768 or a copy thereof at sometime after Hinz executed the tax return. At the time the estate tax return was filed, Christy and Hinz believed that this tax return was timely.
The estate tax return, showing a net estate tax and balance due of $3,880,270.19, was filed on February 4, 1994, 21 months after decedent's death and 6 months after the August 4, 1993, extended due date. This tax return includes an election under section 6166 to pay the estate taxes in nine installments starting May 4, 1997, with annual interest payments starting May 4, 1994.
By letter dated March 30, 1994, and addressed to Hinz at his home address, respondent tentatively allowed petitioner's section 6166 election. This letter states that there is a balance due of $507,914.99 ($220,402.67 for nondeferred tax, and the remainder for interest and penalties), which is to be paid by April 25, 1994.
By letter dated February 6, 1995, and addressed to Hinz at his home address, respondent states that petitioner did not meet the requirements of section 6166 because the estate tax return was not filed timely. This letter states that there is a balance due of $5,297,476.68 ($3,500,270.19 for tax, and the remainder for interest and penalties), which is to be paid by February 27, 1995.
By letter dated March 8, 1995, respondent informed Christy that decedent's estate tax return was being examined. This letter asks Christy to send numerous records of the estate to respondent. Sometime after Christy received the March 8, 1995, letter, the agent who was conducting the examination of decedent's estate tax return told Christy that decedent's estate tax return was filed late. Notwithstanding the February 6, 1995, letter to Hinz, this was the first time that Christy learned that decedent's estate tax return may have been filed late. At the suggestion of this agent, on November 25, 1996, Christy wrote a letter to the District Director explaining that because Christy's "eyesight is not what it used to be", Christy misread the extension and inadvertently filed decedent's estate tax return late. Christy later found out that he was suffering from an eye condition called macular degeneration and suspects that this had already begun to affect his eyesight by early 1993.
On February 3, 1997, respondent issued a notice of deficiency determining a tax liability of $5,612,618, almost 45 percent more than the amount reported on the filed estate tax return.
On February 6, 1997, an amended estate tax return was submitted to respondent.5 This amended tax return shows a tax liability of $1,771,665, almost 55 percent less than the amount reported on the filed estate tax return.
Hinz delegated to Christy the duty of timely filing the tax return.
Among the properties included in decedent's gross estate, the values of which are reported on decedent's estate tax return, are four real properties located in Santa Clara...
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