Academic journal article Journal of Accountancy

File Now or File Later

Academic journal article Journal of Accountancy

File Now or File Later

Article excerpt

The U.S. District Court for the District of Massachusetts held that an estate was liable for a late filing penalty since its reliance on an accountant's advice to file a late estate tax return rather than a timely estimated return was not reasonable cause for filing the return after the due date. That the estate had fully paid its estimated estate tax before an extended payment deadline (but after the original deadline) did not excuse the penalty, the court held.

A taxpayer who files a delinquent tax return must pay a penalty of 5% of the tax liability per month or portion of a month, up to a maximum of 25%, unless the taxpayer can prove that the failure to file a timely return was due to reasonable cause and not due to willful neglect (Sec. 6651). In Boyle, 469 U.S. 241 (1985), the Supreme Court held that an estate did not have reasonable cause when an attorney it had hired to handle the estate failed to file a timely return. The Court contrasted the facts in Boyle to those in numerous prior cases where taxpayer reliance on an expert's opinion on a matter of tax law, such as whether a return needed to be filed, was reasonable cause. The Court in Boyle referred to willful neglect as a "conscious, intentional failure or reckless indifference."

Arthur Young was the executor of his mother's estate, which was required to file an estate tax return and pay its tax by May 14, 2009. The estate properly extended the tax return's due date and the tax payment date to Nov. 14, 2009, and May 14, 2010, respectively, and made tax payments of $760,000 on May 14, 2009, and $2.2 million on Aug. 31, 2009. When valuing its assets, the estate obtained real estate appraisals that it believed were much higher than fair market value. …

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