ABATEMENT OF PENALTY FOR THE LATE FILING OF FEDERAL ESTATE TAX RETURN DUE TO RELIANCE ON ATTORNEY’S ADVICE

The District Court found that the executors of an estate reasonably relied on the erroneous advice of counsel in the late filing of the estate’s federal estate tax return.

Read More…federal estate tax return

Because of a dispute over the valuation of the estate assets among the five beneficiaries of the estate, the estate’s attorney filed IRS Form 4768 and obtained a six-month filing extension and one-year payment extension of the estate’s federal estate tax. The estate’s attorneys incorrectly advised the executors that both the estate tax filing date and the tax payment had been deferred for one year. The estate paid $900,000 on February 12, 2013, prior to the extended payment deadline, but did not file the federal estate tax return until July 2, 2013, at which time it was six months late. The IRS assessed a late-filing penalty of almost $200,000, with interest of $17,000.

The Court found that the executors’ exercise of ordinary business care and prudence in relying on their attorney’s advice, in addition to their timely payment of $100,000 more than the tax that was eventually due, constituted as reasonable cause to abate the assessment of late filing penalties and interest.

Reference: Margery J. Schneider, Tax Update, Probate and Trust Law Section Newsletter, No. 144, Estate of Hake (M.D. PA. March 9, 2017)

Kindly visit our Estate Tax Planning and Probate/Estate Administration websites or contact one of our Philadelphia Estate Administration Attorneys at 215-977-8200 for more information on this topic.