Estate of Maltaman v. Commissioner
| Decision Date | 04 March 1997 |
| Docket Number | Docket No. 3845-95. |
| Citation | 73 T.C.M. 2162 |
| Parties | Estate of Joseph G. Maltaman, Deceased, Paul J. Constantino, Special Administator v. Commissioner. |
| Court | U.S. Tax Court |
Donald Del Grande, Burlingame, Calif., for the petitioner. Debra K. Estrem, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined a deficiency of $103,932 in petitioner's Federal estate tax and an addition to tax pursuant to section 6651(a)(1) of $25,983. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect on the date of the death of Joseph G. Maltaman (decedent), and all Rule references are to the Tax Court Rules of Practice and Procedure. After concessions, the sole issue remaining for decision is whether petitioner is liable for the addition to tax for failure to file petitioner's estate tax return timely.
Some of the facts have been stipulated for trial pursuant to Rule 91. The parties' stipulations of fact are incorporated herein by reference and are found as facts in the instant case.
Decedent, a semiretired attorney, died intestate on May 28, 1990, in Daly City, California. At the time the petition in the instant case was filed, the address of the special administrator of decedent's estate (decedent's estate or the estate), Paul J. Constantino, was Burlingame, California.
Decedent, who was 67 years of age at his death and had never married, was the father of a child, Joseph C. Maltaman Muscat, who was 3 or 4 years old at the time of decedent's death. The child's mother, Josephine Muscat, retained Frank Blum, an attorney, to represent her in connection with the administration of decedent's estate. Mr. Blum sought to have Ms. Muscat named special administrator of the estate, but, after hearings, on June 21, 1990, the superior court for the State of California in and for the County of San Mateo (superior court) appointed as special administrator Mr. Constantino, a practicing attorney who had no prior relationship with decedent. Mr. Constantino had previously handled two or three estates with assets of at most $300,000 each.
Mr. Constantino, Mr. Blum, and another individual conducted a search for decedent's assets. They contacted financial institutions that might hold decedent's assets. The process of identifying decedent's assets was lengthy and difficult. Clues to the existence of assets had to be gleaned from decedent's records. Decedent maintained bank accounts and revocable trusts under a variety of names. Decedent also held funds in trust for his clients in certain of those accounts, and ownership of the funds had to be verified before they were released.
Many of decedent's assets were not subject to probate because they had passed to his child by contract at decedent's death. After the quantity of assets held in the name of decedent's child was determined, Mr. Blum instituted a guardianship proceeding for the benefit of decedent's child, and a conservator, Ms. Muscat, was appointed on September 24, 1990. Assets belonging to decedent's child were transferred by their custodians directly into the guardianship proceeding.
By late December 1990 or early January 1991, Mr. Constantino became aware that a Federal estate tax return (petitioner's estate tax return or the estate tax return) would be required with respect to decedent's estate. Mr. Constantino was also aware that he had an obligation to file that return but had no experience in preparing Federal estate tax returns. Mr. Blum asked Alfred Belotz, a public accountant since 1951, to prepare the income tax return required in connection with the guardianship proceeding, and Mr. Blum suggested to Mr. Constantino that Mr. Belotz also prepare petitioner's estate tax return. Mr. Blum had known Mr. Belotz for 40 years and had previously retained him to perform work with respect to estates for which Mr. Blum was attorney.
On January 17, 1991, Messrs. Blum, Belotz, and Constantino met, and Mr. Constantino agreed at that time to engage Mr. Belotz to prepare the estate's Federal tax returns. Mr. Constantino was made aware of the due date of petitioner's estate tax return, which was February 28, 1991 (initial due date), and that due date was discussed at the meeting. Because of the difficulties associated with identifying decedent's assets, it was decided to seek an extension of the time for filing petitioner's estate tax return. Messrs. Constantino and Blum provided Mr. Belotz with information concerning the assets includable in decedent's estate and the estate's deductible expenses, from which the estate's Federal estate tax liability could be estimated.
Mr. Belotz prepared a Form 4768, Application for Extension of Time to File U.S. Estate (and Generation-Skipping Transfer) Tax Return and/or Pay Estate (and Generation-Skipping Transfer) Tax(es), that requested an extension of the due date for filing the estate tax return to August 28, 1991, 6 months after the initial due date, and estimated the estate's Federal estate tax liability as $50,184. Mr. Belotz transmitted the extension application form to Mr. Blum, who in turn sent it to Mr. Constantino. Mr. Constantino signed the form, which was dated February 6, 1991, and mailed it to the Internal Revenue Service (Service) on February 21, 1991, which received it on February 23, 1991. Because Mr. Constantino did not have sufficient probate assets to pay the estimated estate tax due, funds subject to the guardianship proceeding were used for that purpose.
On April 29, 1991, the Service approved the requested extension of the due date for filing the estate tax return, and Mr. Belotz informed Mr. Constantino that the due date, as extended, was August 28, 1991 (the extended due date).
The following inventories and appraisals of assets were filed with the superior court in connection with the guardianship proceeding on the dates shown:
Inventory Date Appraisal
Partial No. 1 .............................. Apr. 15, 1991 $573,283.98
Complete and Final ......................... May 28, 1991 41,724.53
Supplemental ............................... June 17, 1991 96,630.99
Supplemental #2 ............................ July 31, 1991 104,645.00
Supplemental #3 ............................ Nov. 18, 1991 3,152.58
Supplemental #4 ............................ Apr. 14, 1992 11,984.64
Mr. Slum provided Mr. Belotz with a copy of each of those inventories shortly after the respective inventory was filed with the superior court. Mr. Blum also provided such information to Mr. Constantino.
During July 1991, Mr. Belotz began preparing petitioner's estate tax return. By letter dated July 5, 1991, Mr. Belotz notified Mr. Constantino that Mr. Belotz required certain information in order to prepare various tax returns, such as details of funeral expenses, and attached a blank Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, with the items for which information was required circled in red. Mr. Constantino returned the estate tax return form with a letter dated July 24, 1991, which stated that he was working on the inventory. A handwritten notation on the copy of the July 5, 1991, letter in the record states as follows: .
During August 1991, Messrs. Constantino, Blum, and Belotz discussed applying for a second and further extension of the due date of the estate tax return because uncertainty still existed as to whether all of decedent's assets had been identified. When Messrs. Constantino and Blum asked Mr. Belotz about this, Mr. Belotz replied that, in all his experience, which included preparing over 50 Federal estate tax returns, he had never before had occasion to request a second extension of a due date. Nonetheless, Mr. Belotz thought that there was good cause for requesting a second extension given the problems with the estate. Mr. Belotz, however, found no form for applying for such an extension. Mr. Belotz was not aware that the Service's regulations provided that the maximum allowable extension of time for filing a Federal estate tax return was 6 months beyond the original due date of such a return.
Pursuant to the direction of Mr. Constantino, Mr. Belotz mailed to the Service a letter dated August 27, 1991, requesting a second and further extension (second extension request) of the due date for filing the estate tax return, citing "litigation and the time consuming efforts in uncovering all assets" as the grounds for the request. Enclosed with the letter was a copy of the Form 4768 that had been filed to request the initial due date extension to August 28, 1991. The letter and its enclosure were received by the Service on August 30, 1991. The Service denied the second extension request on September 5, 1991, on the grounds that "the maximum extension allowed by law is 6-months."
By letter dated September 11, 1991, Mr. Belotz informed Mr. Constantino of the Service's action. In that letter, Mr. Belotz stated: "I would suggest that you submit the necessary information and material to my office as soon as possible so that we can start preparing the necessary forms to file on behalf of the estate." Mr. Belotz also informed Mr. Blum that the second extension request had been denied. Mr. Belotz was aware that an addition to tax could be imposed if the estate tax return was not filed timely. At that time and when the return was filed, Mr. Belotz did not consider that the addition to tax for failure to file timely would be imposed on the estate because it appeared to him that the estimated tax payment that had been made when extension of the initial due date was requested exceeded the amount of estate tax due from the estate. After the...
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