John B. Fleming, Personal Representative of the Estate of John J. Fleming, Deceased v. United States , 61 A.L.R. Fed. 307 ( 1981 )

CUDAHY, Circuit Judge,

dissenting.

The majority here guts whatever meaning may inhere in the phrase “reasonable cause” and in effect imposes vicarious liability on the taxpayer for the late filing of the return and late payment of the tax.

A proper starting point for analysis must be the Treasury regulation which defines “reasonable cause” as the exercise of “ordinary business care and prudence.” 26 C.F.R. § 301.6651-l(c)(l). Although perhaps lacking in total intellectual symmetry,¹ the decisions of this and other courts appear to distinguish between two factual settings with respect to what constitutes “reasonable cause.” In the first, a taxpayer seeks advice from an attorney concerning whether a return must be filed. The attorney advises his client that no return is required. Assuming that the matter is sufficiently complex to make it reasonable for the taxpayer to rely on his counsel, such reliance excuses a late filing. Commissioner v. American Association of Engineers Employment, Inc., 204 F.2d 19 (7th Cir. 1953). This common sense result is entirely sound because the attorney is rendering an opinion on the subject of his own professional expertise — the law — which a layman has no practical means of verifying from his own resources. See Rohrabaugh v. United States, 611 F.2d 211, 217 (7th Cir. 1979).

Another line of cases holds that when a taxpayer knows that a return (as distinguished from an application for an extension of time) is due on a particular date, he may not rely on his attorney to file the return by that date but must personally verify the filing. This is the situation addressed by United States v. Kroll, 547 F.2d 393 (7th Cir. 1977).² In Kroll, the taxpayer knew that the estate tax return was due but did not ask his attorney whether the return had been filed. In that situation, of course, the taxpayer would have had personally to sign the return. “[A]ny layman with the barest modicum of business experience ... knows that he must sign the return before it is filed.” Kroll, 547 F.2d at 396. In addition, in Kroll the taxpayer knew that he had not been called upon to draw a check on the estate to pay the tax.

The resemblance of the instant case to Kroll is not apparent; Rohrabaugh and American Association of Engineers provide more relevant precedents. For this is a “legal opinion” case where the attorney told the taxpayer that the legal effect of filing the application for an extension was to automatically extend the time for filing the return and payment of the tax for one year. The majority does not suggest what the taxpayer should do in the face of such an opinion — challenge the attorney and read the Internal Revenue Code provisions and regulations himself? Without even a beginning tax course in law school, the futility of this approach is apparent. Or I suppose one might consult a second attorney, although I do not understand our function to be providing work for the tax bar.

Kroll is also distinguishable from the instant case because the nature of the attorney’s advice in this case required no followup. Here, the taxpayer was told that the extension was granted automatically for one year, and unlike Kroll, there was no reason at all to determine whether there was a tax return to sign. Quite unlike Kroll (and contrary to the implication of the majority), the taxpayer himself did not have to sign the application for an extension of time. He could quite reasonably and in normal course rely on his lawyer to perform this perfunctory and ministerial act. Although the extent of the taxpayer’s knowledge on this point is unclear, the relevant form authorizes the taxpayer’s attorney to file for an extension of time. See I.R.S. Form 4768. No case has held that a client must supervise the work of his lawyer’s secretary or personally determine whether the attorney’s signature was in fact affixed to the documents he was preparing. The taxpayer was informed by his attorney that the application had been filed. Majority opinion at 1123. In light of the attorney’s other legal advice concerning the effect of the application, the taxpayer could quite reasonably let the matter rest while closing the estate and filing the estate tax return well within what he understood to be the one-year extension period. In Kroll, on the other hand, the duty delegated to the attorney (filing the return itself) could not be completed without the taxpayer at some point personally signing the return.

As I have suggested the. majority also seems to rely on an agency theory to sustain the liability of the taxpayer. Majority opinion at 1127. This approach was advocated by Judge Swygert in his dissent in Rohrabaugh, 611 F.2d at 219-20, and was, I believe, rejected by the majority in that case. If the knowledge of the taxpayer’s attorney had been imputed to the taxpayer in Rohrabaugh, the government would have prevailed. The long line of cases from this and other circuits which have found “reasonable cause” where the attorney incorrectly advised the taxpayer that no return need be filed have also implicitly rejected an agency approach under Section 6651(a)(1). See Commissioner v. American Association of Engineers Employment, Inc., 204 F.2d 19 (7th Cir. 1953); Haywood Lumber & Mining Co. v. Commissioner, 178 F.2d 769 (2d Cir. 1950); Orient Investment & Finance Co. v. Commissioner, 166 F.2d 601 (D.C.Cir.1948); Hatfried, Inc. v. Commissioner, 162 F.2d 628 (3d Cir. 1947). Rohrabaugh and these other cases preclude a vicarious liability approach and forbid the imputation of the attorney’s knowledge to the taxpayer.

Here, the majority points out no specific in which the taxpayer has not acted with “ordinary business care and prudence.” 26 C.F.R. § 301.6651-l(c)(l). Those instances relied on by the majority, majority opinion at 1125, all pertain to matters as to which the taxpayer could reasonably rely on his attorney’s “legal opinion.” Under these circumstances, the imposition of heavy penalties is a windfall to the government adding to the widespread belief in the unfair and arbitrary nature of much government procedure. I, therefore, respectfully dissent.

1 . The phrases “reasonable cause” or “ordinary business care and prudence” would seemingly encompass the reliance of a taxpayer on his attorney in any legal matter, at least where there are not other circumstances that would render that reliance unreasonable.

2 . If Kroll can be successfully distinguished from Rohrabaugh, a matter of some doubt, the taxpayer’s knowledge and awareness of when the return was due in Kroll provides the distinction. In connection with other circumstances (such as the taxpayer’s need personally to sign the return), his knowledge of the due date made it unreasonable in Kroll for him to rely on his attorney.