The Blame Game
In Estate of Zlotowski v. Commissioner, the U.S. Tax Court held the estate's two executors liable for the untimely filing of the estate's 706 return. While an individual may escape liability if it is shown he or she reasonably relied on the legal advice of counsel, the Tax Court found no such reasonable reliance in Zlotowski. While the estate argued its attorney had failed to advise the executors of the return's due date, the IRS responded by arguing that, first, a taxpayer's reliance on the advice of its attorney with respect to matters such as meeting filing deadlines generally does not constitute reasonable reliance, and, secondly, the executors' reliance on the attorney to file the estate tax return was an impermissible delegation of their responsibility as executors. The IRS further pointed out that, in this case, there was no evidence the executors even discussed with their attorney whether, as a matter of law, it was not necessary to timely file a return. Therefore, the IRS concluded, there was no actual legal advice given that the executors could even argue they reasonably relied upon.
The Tax Court sided with the IRS, holding that there was no way the estate could possibly stand upon its argument of reasonable reliance on the advice of counsel: there was no evidence the executors had even asked their attorney for advice as to whether the return was due on time, let alone that they had received such advice. In its analysis, the court also pointed to testimony given by one of the executors that further demonstrated the executors' complete disengagement from the estate administration process, including the preparation of the estate tax return. In the end, the estate was held liable for the additional tax generated as a result of the late filing.
The moral of the story: An executor's complete disengagement from the estate administration process will not suffice as support for the argument of reasonable reliance on the legal advice of counsel. The executor of an estate, in accepting the position, takes on certain obligations and responsibilities that cannot be ignored or placed solely upon an attorney. For this reason, the position of executor is not one to be accepted without giving consideration to the duties involved.
