In Estate of Hake v. United States, two executors of
their mother's estate filed the estate tax return on the date
that their tax attorney advised them it was due.
Unfortunately, the attorney erred and the estate filed the
return six months late. Pursuant to IRC § 6651(a)(1), the
Internal Revenue Service imposed a $197,868.26 late filing penalty.
The U.S. District Court held that the estate should not be liable
for the penalties, reasoning that the executors had reasonable
cause for filing late because they relied on their attorney's
The ruling in Hake should be distinguished from that of
United States v. Boyle. First, Boyle is a
decision of the Unites States Supreme Court and is definitive,
compared to the opinion of the District Court in Hake.
Second, in Boyle, the executor had delegated the
duty to file the return to the attorney who, by an oversight, filed
the return three months late, resulting in a late filing penalty.
The Court held that the duty to file a return cannot be delegated
and the obligation to timely file falls on the executor. Because
knowing that returns are due at prescribed times requires no
specific expertise, the reliance in that situation is not reliance
on expert advice and is not reasonable. The Court left open the
issue of whether there is reasonable cause for a late filing when a
taxpayer receives erroneous advice from a tax professional about a
return's due date.
The court in Hake articulated three scenarios that
courts generally address concerning delegation. First, as in
Boyle, where a taxpayer delegated the task of filing to an
agent. Second, as in Hake, where a taxpayer relies on a
tax professional's advice of resulting in filing a return after
the due date but within the time that the professional advised was
available. Third, where a tax professional advises a taxpayer on a
matter of tax law.
As seen in Boyle and its progeny, it is clear law that
the duty to file a tax return may not be delegated to another
person, even an attorney. If such delegation does occur, any error
in the filing will not be excused.
However, as seen in Hake, if a taxpayer relies on
advice from an attorney which is incorrect, such reliance may be
reasonable cause for the errors and removal of any penalties. As
noted in Hake, this second scenario does not always hold
true due to a current split in the courts. In several courts, the
advice relied upon must be objectively reasonable in nature before
it can be relied upon. An example of unreasonable reliance is
reliance upon erroneous advice regarding return filing deadlines
which are not subject to extension. Still, other courts have found
that reliance on professional advice is inherently reasonable.
In sum, taxpayers should never delegate the duty to file a
return and, although taxpayer reliance on professional advice may
prevent late filing penalties, taxpayers should verify the
return's proper due date to avoid potential penalties.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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