Estate of Mayer v. Comm'r of Internal Revenue, Docket No. 923-63.
| Citation | 43 T.C. 403 |
| Decision Date | 31 December 1964 |
| Docket Number | Docket No. 923-63. |
| Parties | ESTATE OF WILLIAM T. MAYER, PHILIP A. PAGANO, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Richard Kilcullen, for the petitioner.
Robert A. Trevisani, for the respondent.
Held, petitioner's failure to file a timely estate tax return was not due to reasonable cause, thereby requiring addition to tax under section 6651, I.R.C. 1954.
Respondent, by letter dated December 11, 1962, notified the executor of the estate of William T. Mayer that the determination of the estate tax liability of the estate disclosed ‘a deficiency in penalty’ in the amount of $3,466.89.
At issue is whether the failure timely to file the estate tax return was due to reasonable cause so as to make inapplicable the addition to tax provided for in section 6651 of the 1954 Code.
All of the facts have been stipulated and are incorporated herein by this reference.
Decedent, William T. Mayer, died on October 9, 1958. Philip A. Pagano, his executor, filed a U.S. estate tax return with the district director of internal revenue at Manhattan, New York, on March 7, 1960. Such return was due on January 9, 1960.
Pagano is a certified public accountant; his office is located in the Bronx, N.Y. Most of his clients are small retail businesses such as liquor stores. Pagano is familiar with both Federal and State income taxes insofar as they relate to his clients. He has had limited experience in New York and Federal estate tax matters.
William J. Schmitt is an attorney in New York City who has been in practice for over 30 years. Although Schmitt is a general practitioner, he considers himself to be competent in the fields of both income and estate taxation. During the past 20 years, he has prepared and filed Federal estate tax returns for at least eight estates.
Promptly upon his qualification as executor, Pagano retained the services of Schmitt to represent him in his capacity as executor. Schmitt was to be the attorney in all matters involving the discharge of Pagano's duties as executor, including the preparation of New York and Federal estate tax returns. Pagano considered Schmitt qualified in such matters.
On January 12, 1959, Pagano filed an ‘Estate Tax Preliminary Notice’ (Form 704) in which he estimated decedent's gross estate to be $888,500. Included among the assets of the estate was stock in three closely held corporations. In order to establish a more accurate basis for reporting the value of the foregoing stock on the Federal estate tax return, it was decided that the stock should first be valued by the New York tax authorities. On August 10, 1959, Pagano filed a New York estate tax return. At the time of filing this return, an application for prompt review was requested so that the value of this stock could be agreed upon before the Federal estate tax was due. Approximately eight conferences were held with the New York tax authorities in connection with the valuation of the stock. Pagano worked closely with Schmitt in respect of the extensive negotiations with the New York tax authorities, including the foregoing eight conferences, involving the valuation of estate assets. On February 16, 1960, the parties reached an agreement as to the value of the stock in one of the corporations and on March 1, 1960, they reached an agreement as to the value of the stock in the two other corporations.
Pagano relied upon Schmitt to prepare for his signature the necessary tax returns for the estate, in proper form, and to timely file such returns. However, Pagano himself was actively engaged along with Schmitt in the preparation of the returns. While Pagano ‘may have known,‘ or could have found out, the due date for filing, he did not concern himself with it.
Schmitt made a notation on his diary that the Federal estate tax return was due on March 9, 1960. He was not aware of this miscalculation until he received notice from the district director, bearing the date February 12, 1960, that such return was overdue.
The ‘Estate Tax Preliminary Notice’ (Form 704), signed and filed by Pagano on January 12, 1959, consisted of a single sheet and contained the following in boldface type:
NOTICE.— Failure to file a required return on Form 706 within 15 months from the date of death may render executors, administrators, and persons in actual or constructive possession of the decedent's property liable for penalties.
After the Federal return was filed, the Commissioner imposed a so-called penalty of 10 percent of the amount shown as due on the return as filed by petitioner. This amount has been assessed and is not in contest here. Thereafter, the Commissioner determined a deficiency in estate tax in the amount of.$34,668.91 and added the so-called penalty equal to 10 percent of that amount ($3,466.89) pursuant to section 6651 of the 1954 Code for failure to file the return on time. It is only this $3,466.89 addition to tax that is in dispute in this proceeding.
At issue is whether petitioner's failure to file the Federal estate tax return on time was due to ‘reasonable cause’ under section 6651.1 Petitioner contends that his reliance on qualified counsel to prepare and file the return constituted such ‘reasonable cause.'2 We hold otherwise.
Reasonable cause means ‘the exercise of ordinary business care and prudence.’ Southeastern Finance Co. v. Commissioner, 153 F.2d 205 (C.A. 5), affirming 4 T.C. 1069, acq. 1945 C.B. 6. We think that petitioner, a certified public accountant who is familiar with both Federal and State income taxes, who extensively participated with Schmitt in...
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