Estate’s Claim for a Refund of Late-Filing Penalties Denied

Posted on April 16, 2015

The United States District Court for the Southern District of Ohio recently held in favor of the IRS and rejected an Estate’s claim to recover $1,198,261.38 in penalties and interest as a result of the Estate’s failure to timely file its Estate tax return.

Virginia Escher died at the age of 92 with an Estate worth more than $12 million dollars. Her cousin, Janice Specht, was asked to be the executor of the Estate and hired the taxpayer’s attorney to assist her. Ms. Specht was a homemaker with a high school education who had never served as an executor, owned no stock and had never been in an attorney’s office. The attorney, Mary Backsman, had over 50 years of experience with estates and taxes. Unfortunately, Backsman was privately battling brain cancer and deceived Ms. Specht as to the status of the filing of an extension of time to file the estate tax returns. After paying over $1 million dollars in penalties and interest, the Estate argued that reasonable cause existed for failing to timely file the estate tax return and to pay the associated liability because they relied on their attorney and because their attorney intentionally deceived them. Unfortunately, the Court held in favor of the IRS, stating that Ms. Specht’s duty to timely file tax returns was non-delegable and, as such, the facts were not sufficient to constitute reasonable cause for the Estate’s failure to file the estate tax return or to pay the associated tax liability in full.

Patrick T. Sheehan & Associates is surprised that the Court held in favor of the IRS. The attorney intentionally deceived the executor. What do you think?