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T&E Litigation Newsletter - 1/3/13

January 2013Advisories

In Estate of Young v. United States of America, Civil Action No. 11-11829-RWZ, 2012 U.S. Dist. LEXIS 178232 (D. Mass. Dec. 17, 2012), the U.S. District Court for the District of Massachusetts entered summary judgment for the United States on the plaintiff Estate’s claim for a refund of a tax penalty.

Pursuant to an extension, the Estate’s tax return was due by November 14, 2009, and its tax payment was due by May 14, 2010. The Estate made estimated tax payments prior to filing for the extension. The Estate did not file the return by the extended deadline, however, because it was difficult to obtain an accurate valuation of its real estate holdings as a result of the financial crisis and plummeting property values.

The Estate had two options. First, file a timely return using the appraised values and then file an amended return later when the properties were sold, or second, wait until the properties were sold and then file a single late return. Based on the advice of its accountants, who believed there would be no late-filing penalty because the Estate had already paid more than its eventual tax liability, the Estate chose the second option, filing a single late return. The IRS assessed a substantial late-filing penalty.

In entering summary judgment for the United States, the Court rejected the Estate’s argument that its late filing was due to reasonable cause. The Court reasoned that the Estate was aware of its legal requirement to file the return by the deadline, and its reliance on the accountants’ faulty advice that there would be no penalty for late filing did not constitute reasonable cause. “A taxpayer cannot disregard a known duty to file a timely return just because it believes no penalty will result, any more than a pedestrian can disregard a known duty not to jaywalk because he believes no penalty will result.”

Regarding the Estate’s argument that accurate property valuations were not available at the deadline, the Court held that the Estate had an obligation to file a timely return with the best available information. Based on these facts, the Court also found willful neglect. “There is no doubt it was physically possible for the Estate to file an estimated return on time; the Estate simply chose not to, believing it would be better to file late. That conscious choice to file a deliberately late return constitutes willful neglect.”

This update was authored by Mark Swirbalus, a Director in the firm's Probate & Fiduciary Litigation group. For questions or additional information on this topic, please contact Mark at [email protected] or contact any member of the Probate & Fiduciary Litigation group.

This newsletter should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and any specific legal questions you may have.

Pursuant to IRS Circular 230, please be advised that, this communication is not intended to be, was not written to be and cannot be used by any taxpayer for the purpose of (i) avoiding penalties under U.S. federal tax law or (ii) promoting, marketing or recommending to another taxpayer any transaction or matter addressed herein.


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