Peter Knappe v. United States , 713 F.3d 1164 ( 2013 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
PETER KNAPPE , Executor of the No. 10-56904
Estate of INGBORG PATTEE ,
deceased, and as Trustee under will D.C. No.
of INGBORG PATTEE , dated 2:09-cv-07328-
07/01/1994, DMG-PJW
Plaintiff-Appellant,
v. OPINION
UNITED STATES OF AMERICA ,
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Dolly M. Gee, District Judge, Presiding
Argued and Submitted
May 9, 2012—Pasadena, California
Filed April 4, 2013
Before: Kim McLane Wardlaw, Richard A. Paez, and
Johnnie B. Rawlinson, Circuit Judges.
Opinion by Judge Paez
2 KNAPPE V . UNITED STATES
SUMMARY*
Tax
The panel affirmed the district court’s grant of summary
judgment to the Government in a tax refund action seeking
abatement under 26 U.S.C. § 6651(a)(1) of a penalty for
filing a late estate tax return.
Taxpayer claimed he was entitled to relief because he
relied on his expert accountant, who incorrectly advised him
about the deadline for filing the return after obtaining an
extension. The panel held that it was taxpayer’s duty to
ascertain the correct extended filing deadline, and that he
failed to exercise ordinary business care and prudence by
relying on his accountant’s advice about this nonsubstantive
matter. Consequently, taxpayer failed to show “reasonable
cause” under § 6651(a)(1) to excuse the penalty.
COUNSEL
Janet L. Everson (argued), Jason Galek, Arthur V. Pearson,
and Vincent O’Gara, Murphy Pearson Bradley & Feeney, San
Francisco, California, for Plaintiff-Appellant.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
KNAPPE V . UNITED STATES 3
Carol Barthel (argued), John A. Dudeck, Jr., and Gilbert
Steven Rothenberg, United States Department of Justice,
Washington, D.C.; and Andrew Thomas Pribe, Office of the
United States Attorney, Los Angeles, California, for
Defendant-Appellee.
OPINION
PAEZ, Circuit Judge:
When can you trust your accountant’s advice about when
your taxes are due? That is the question we face today.
Appellant Peter Knappe, acting as the executor of an estate,
asked his accountant to apply for an extension of the deadline
to file the estate-tax return from the Internal Revenue Service
(“IRS”). The accountant told Knappe that the deadline had
been extended one year, when in fact it had been extended
only six months. Acting on the bad advice, Knappe filed the
tax return several months late, and the IRS assessed
significant penalties against the estate. Knappe initiated this
action in the Central District of California, seeking a refund
of the penalty. The district court granted summary judgment
to the Government on the ground that Knappe had not shown
“reasonable cause” to excuse the penalty, as that term is used
in 26 U.S.C. § 6651(a)(1). We affirm.
I. Background
Ingeborg Pattee died on November 30, 2005, leaving
behind a substantial estate. Her will named as the executor of
the estate Peter Knappe, a longtime friend and successful
businessman. Because Knappe had no prior experience
serving as the executor of an estate or preparing an estate-tax
4 KNAPPE V . UNITED STATES
return, he enlisted the help of Francis Burns, a Certified
Public Accountant. Burns had worked as a corporate tax
accountant for Knappe’s company for many years, and
Knappe had always been satisfied with his work. In
December 2005, Burns told Knappe that the Pattee estate
would need to file a United States Estate Tax Return, IRS
Form 706. He also correctly informed Knappe that the
deadline to file the return was nine months from the date of
Pattee’s death: August 30, 2006.
At some point before that deadline, Knappe realized he
did not have time to obtain real estate appraisals that he
needed to prepare the return accurately. Knappe sought
Burns’s advice about requesting an extension of the filing
deadline from the IRS. Burns told Knappe that he could
obtain an extension of both the filing and payment deadlines,
and that the same extension was available for both deadlines.
Knappe authorized Burns to prepare and file IRS Form 4768,
an “Application for Extension of Time To File a Return
and/or Pay U.S. Estate (and Generation-Skipping Transfer)
Taxes.”
Form 4768 gives taxpayers three options: they can seek
an extension of the Form 706 filing deadline, seek an
extension of the time to pay any estate tax due, or both. The
instructions that accompany Form 4768 explain the difference
between the two categories of extensions. The instructions for
“Part II, Extension of Time to File Form 706” state that an
“executor may apply for an automatic 6-month extension of
time to file Form 706.” An executor who is “out of the
country” may apply for an additional extension in excess of
the automatic six months; the instructions warn, however, that
“[y]ou cannot combine an application for an automatic
extension and an additional extension on the same Form
KNAPPE V . UNITED STATES 5
4768.” Finally, the instructions explain that an executor who
failed timely to apply for the automatic six-month extension
may apply for an “extension for cause.” “Unless the executor
is out of the country,” however, extensions for cause are
limited to “6 months from the original due date of the Form
706.”
The instructions for “Part III, Extension of Time to Pay”
explain that such an extension “may not exceed twelve
months” and is granted at the discretion of the IRS. In
contrast to extensions of the filing deadline, the IRS may
grant up to ten consecutive extensions of the payment
deadline—parceled out one year at a time—provided the
taxpayer can establish “why it is impossible or impractical for
the executor to pay the full amount of the estate tax by the
estate tax return due date.”
The two types of extensions are thus subject to two
different sets of rules. Extensions of the filing deadline are
granted automatically for six months, and only foreign
executors can seek additional time. Extensions of the
payment deadline, on the other hand, are purely discretionary,
and the IRS may grant multiple extensions, each as long as a
year.
Burns filed Form 4786 on August 30, 2006, applying for
the six-month automatic filing extension and a one-year
discretionary payment extension.
After filing the completed Form 4768 with the IRS, Burns
sent a copy to Knappe. Knappe gave the form a cursory
review, but did not examine it in detail. Knappe testified that
there was no reason he could not have scrutinized the form,
but that he mostly noticed the extension date Burns had
6 KNAPPE V . UNITED STATES
requested, “8/30/2007,” and Burns’s estimate that the taxes
owed would total $1.1 million.
The IRS approved the extension request in writing on
January 11, 2007. On the form itself, which the IRS returned
to Burns, an IRS agent had hand-written “2/28/07” next to the
box Burns had checked to apply for the automatic six-month
extension of the filing deadline. A new document, titled
“Notice to Applicant,” was attached to the returned
application. The Notice to Applicant included two sections:
the first relating to the application for an extension of the
filing deadline, and the second to the application for an
extension of the payment deadline. Three checkboxes
appeared in both sections: “Approved,” “Not approved
because,” and “Other.” None of the boxes was checked in the
first section. In the second section, the IRS agent had checked
“Approved” and had typed, “TO 8/30/2007 only.”
At the time Burns prepared Form 4768, he mistakenly
believed that it was possible to request a twelve-month
extension of the filing deadline, even though he had read the
instructions and reviewed the relevant statutes and Treasury
regulations. Before Burns filed the form, he advised Knappe
explicitly that he could obtain a twelve-month extension of
both the filing and payment deadlines. Knappe testified that
he believed that the extension application would extend both
the filing and payment deadlines for one year—to August 30,
2007. Knappe’s understanding of the deadlines rested entirely
on Burns’s representations; he made no independent effort to
assay the rules. When the IRS approved the automatic six-
month extension to the filing deadline and the discretionary
one-year extension to the payment deadline, neither Burns
nor Knappe realized their mistake.
KNAPPE V . UNITED STATES 7
Convinced that the filing deadline had been extended one
year, Knappe elected to wait until May 2007 to file the return,
in part to accommodate Burns’s busy schedule during tax
season. Burns and Knappe worked together to complete the
return, and on May 18, 2007, Burns sent Knappe the
completed Form 706. Burns also prepared a cover letter for
Knappe to send to the IRS, which read, “Enclosed for filing
is United States Estate Tax Return Form 706 for the above
referenced decedent. The extended payment date/due date of
this return is August 30, 2007 as shown on the IRS Form
4768 attached to this return.” Knappe filed the return and
cover letter on behalf of the estate on May 29, 2007. He also
enclosed a check for the balance of the estate tax. Knappe
later testified that he could have filed the estate-tax return by
February 28, 2007 if he had understood that Burns had only
obtained a six-month extension.
Sometime in 2008, the IRS observed that Knappe had
filed the estate-tax return after the February 28, 2007
deadline. The agency assessed a 20 percent late-filing penalty
for a four-month delinquency, excluding interest, in the
amount of $196,414.60.1 Knappe called Burns to ask why the
IRS believed the estate-tax return was late. Burns reviewed
the regulations and quickly realized he had made an error.
Burns admitted that determining the correct deadline “was not
an ambiguous question.”
1
The IRS acknowledged in the district court that it improperly computed
the penalty. It should have assessed a 15 percent penalty for a three-month
delinquency, rather than the 20 percent penalty it imposed. The district
court reduced the penalty by $49,103.65. At issue on appeal is the
remaining $185,626.71, including interest.
8 KNAPPE V . UNITED STATES
Knappe requested an abatement of the penalty. The
Internal Revenue Code excuses late-filing executors from
penalties if the failure to file was “due to reasonable cause
and not due to willful neglect.” 26 U.S.C. § 6651(a)(1).
Knappe argued that he was entitled to an abatement because
his reliance on Burns’s erroneous advice was reasonable
cause for the late filing. The IRS denied the abatement
request. Knappe administratively appealed the IRS’s decision,
but the IRS denied the appeal. Knappe then paid the full
amount due and filed a Claim for Refund with the IRS. When
the IRS rejected the claim, Knappe brought this refund action,
again alleging that his reliance on Burns constituted
reasonable cause.
The Government moved for summary judgment. The
district court granted the motion, holding that the existence of
reasonable cause under 26 U.S.C. § 6651(a)(1) was an issue
of law and that Knappe’s reliance on Burns’s advice was
insufficient to establish reasonable cause. Knappe timely
appealed.
We have jurisdiction under 28 U.S.C. § 1291, and “we
review de novo both the district court’s summary judgment
and its interpretation of the Internal Revenue Code.” Aloe
Vera of Am., Inc. v. United States, 580 F.3d 867, 870 (9th Cir.
2009).
II. Analysis
A.
An estate-tax return, Form 706, must be filed within nine
months of the decedent’s death. 26 U.S.C. § 6075(a);
26 C.F.R. § 20.6075-1. An executor may apply for an
KNAPPE V . UNITED STATES 9
automatic six-month extension of time to file Form 706 by
filing Form 4768 on or before the due date of the return and
checking the appropriate box. 26 C.F.R. § 20.6081-1(b).
While the IRS “may grant a reasonable extension of time for
filing any return,” “no such extension shall be for more than
6 months” except in the case of taxpayers who are abroad.
26 U.S.C. § 6081(a).
Extensions of the deadline to pay the estate tax operate
differently. Treasury Department regulations specify that the
IRS may grant an extension of time to pay estate taxes, at the
written request of the executor, “for a reasonable period of
time, not to exceed 12 months.” 26 C.F.R. § 20.6161-1(a)(1).
An executor who fails to file a timely estate-tax return is
subject to a penalty. See 26 U.S.C. § 6651(a)(1). The late-
filing penalty is mandatory when a taxpayer fails “to file any
return . . . on the date prescribed therefor (determined with
regard to any extension of time for filing), unless it is shown
that such failure is due to reasonable cause and not due to
willful neglect.”2 Id. The penalty amount is five percent of the
amount of tax that appears on the return for each month or
fraction of a month that the return is late, up to a maximum of
25 percent. Id.
2
Because the language of § 6651(a)(1) is conjunctive, a late-failing
taxpayer must show both “reasonable cause” and an absence of “willful
neglect” to avoid paying a penalty. See United States v. Boyle, 469 U.S.
241, 245 (1985) (explaining that a taxpayer seeking to escape a penalty
“bears the heavy burden of proving both (1) that the failure did not result
from ‘willful neglect,’ and (2) that the failure was ‘due to reasonable
cause’” (quoting 26 U.S.C. § 6651(a)(1))). The Government does not
argue that Knappe’s tardiness resulted from willful neglect.
10 KNAPPE V . UNITED STATES
To establish reasonable cause, a taxpayer must prove that
he “exercised ordinary business care and prudence and was
nevertheless unable to file the return within the prescribed
time.” 26 C.F.R. § 301.6651-1(c)(1). Knappe’s central
argument on appeal is that by relying on his expert
accountant’s advice about the effect of the extension on the
deadline for filing the return, he exercised “ordinary business
care and prudence” and so had reasonable cause for filing the
return three months late.
B.
Before we turn to that cardinal issue, we must first
address Knappe’s argument that the reasonableness of his
actions is an issue of disputed fact that cannot be
appropriately decided on summary judgment.
The Supreme Court has held that “[w]hether the elements
that constitute ‘reasonable cause’ are present in a given
situation is a question of fact, but what elements must be
present to constitute ‘reasonable cause’ is a question of law.”
United States v. Boyle, 469 U.S. 241, 249 n.8 (1985). In this
case, the parties do not seriously disagree about the material
facts. Knappe insists that factual disputes remain regarding
whether Knappe had knowledge of the correct filing deadline
and whether Burns advised him about it. Viewing the
evidence in the light most favorable to Knappe, however, we
simply assume that he had no actual or constructive
knowledge of the correct filing deadline and that his
uncertainty was the product of Burns’s bad advice. What
remains is the unambiguously legal question of whether
Knappe’s actions satisfy the minimum elements of reasonable
cause. See id.
KNAPPE V . UNITED STATES 11
Cow.
1.
Cases addressing reasonable cause for late filing of tax
returns fall into two general categories. In the first category
are cases involving taxpayers who delegate the task of filing
a return to an expert agent, only to have the agent file the
return late or not at all. The leading case in this category is
Boyle, 469 U.S. 241. There, Boyle, the executor of his
mother’s estate, retained an attorney who advised him that an
estate-tax return was due but did not mention when it was
due. Id. Boyle contacted the attorney repeatedly to inquire
into the progress of the estate proceedings and the preparation
of the return, and was repeatedly assured that the return
would be filed “in plenty of time.” Id. at 242–43 (quotation
marks omitted). Eventually, the attorney admitted to Boyle
that the return was late because a clerical oversight had
caused him to overlook the deadline. Id. at 243. The return
was filed three months late. The IRS assessed the statutory
penalty, and Boyle sued to recover it. Id. at 244.
The Supreme Court held that Boyle’s reliance on his
attorney to file the tax return timely was not reasonable cause
for the delay. “Congress has placed the burden of prompt
filing on the executor,” the Court explained, “not on some
agent or employee of the executor.” Id. at 249. The Court
described the taxpayer’s “fixed and clear” duty as “an
obligation to ascertain the statutory deadline and then to meet
that deadline, except in a very narrow range of situations.” Id.
at 249–50. Delegating the duty of filing to an agent was not
within the “very narrow range of situations” in which failing
to meet a statutory filing deadline would be excused, because
“Congress has charged the executor with an unambiguous,
12 KNAPPE V . UNITED STATES
precisely defined duty to file the return within nine months.”
Id. at 250. That the executor’s agent “was expected to attend
to the matter does not relieve the principal of his duty to
comply with the statute.” Id. The Court continued:
Reliance by a lay person on a lawyer is of
course common; but that reliance cannot
function as a substitute for compliance with
an unambiguous statute. . . . It requires no
special training or effort to ascertain a
deadline and make sure that it is met. The
failure to make a timely filing of a tax return
is not excused by the taxpayer’s reliance on an
agent, and such reliance is not “reasonable
cause” for a late filing under § 6651(a)(1).
Id. at 251–52; see also Conklin Bros. of Santa Rosa, Inc. v.
United States, 986 F.2d 315, 316–18 (9th Cir. 1993) (holding
that reasonable cause did not excuse a corporation’s late
filing and payment of taxes when the company office
manager failed to make timely filings and payments and
falsified records to disguise her errors from company
management).
In the second category are cases in which a taxpayer relies
on an agent’s erroneous advice that no return is due. Courts
have consistently held that such reliance does constitute
reasonable cause for delay. Even the Boyle court appeared
expressly to endorse such a rule:
When an accountant or attorney advises a
taxpayer on a matter of tax law, such as
whether a liability exists, it is reasonable for
the taxpayer to rely on that advice. Most
KNAPPE V . UNITED STATES 13
taxpayers are not competent to discern error in
the substantive advice of an accountant or
attorney. To require the taxpayer to challenge
the attorney, to seek a “second opinion,” or to
try to monitor counsel on the provisions of the
Code himself would nullify the very purpose
of seeking the advice of a presumed expert in
the first place. “Ordinary business care and
prudence” do not demand such actions.
496 U.S. at 250–51 (citations omitted). Cases in this category
stand for the principle that the question of whether a return is
due is a matter of substantive tax law, and that a taxpayer acts
with ordinary business care and prudence when he relies on
an expert’s answer to that question. See, e.g., United States v.
Kroll, 547 F.2d 393, 396 (7th Cir. 1977) (holding that “when
there is no question that a return must be filed, the taxpayer
has a personal, nondelegable duty to file the tax return when
due” but noting that “[w]hether or not the taxpayer is liable
for taxes is a question of tax law which often only an expert
can answer. The taxpayer not only can, but must, rely on the
advice of either an accountant or a lawyer. This reliance is
clearly an exercise of ordinary business care and prudence.”).
This case does not fall squarely into either category.
Knappe neither delegated the task of filing the return to a
neglectful agent nor received mistaken advice that no taxes
were due. Rather, he personally filed the return after the
actual deadline, but within the time that Burns erroneously
had assured him was available.
In Boyle, the Supreme Court expressly declined to reach
the question posed by this case:
14 KNAPPE V . UNITED STATES
Courts have differed over whether a taxpayer
demonstrates “reasonable cause” when, in
reliance on the advice of his accountant or
attorney, the taxpayer files a return after the
actual due date but within the time the adviser
erroneously told him was available. We need
not and do not address ourselves to this issue.
469 U.S. at 251 n.9 (citations omitted). Our sister circuits
have reached contradictory conclusions. Compare, e.g.,
Estate of Kerber v. United States, 717 F.2d 454, 455–56 (8th
Cir. 1983) (per curiam) (refusing to find reasonable cause
where an executrix’s attorney “correctly advised her that it
would be necessary to file an estate tax return” but
“erroneously believed that the return was due one year,”
rather than nine months, “after the decedent’s death”), with
Estate of Bradley v. Comm’r, 33 T.C.M. 70, 72–73
(1974) (holding that it was “consistent with ordinary business
care and prudence for [the executor] to consult a member of
an accounting firm which regularly prepared tax returns for
advice on the due date of the estate tax return and to rely on
the advice he received”), aff’d, 511 F.2d 527 (6th Cir. 1975).3
3
The Seventh and Third Circuits have taken intermediate positions in
cases with analogous, but not identical, facts. In Fleming v. United States,
648 F.2d 1122, 1125–27 (7th Cir. 1981), the Seventh Circuit refused to
absolve a late-filing taxpayer whose attorney failed to submit an extension
application after the taxpayer asked him to do so. In Sanderling, Inc. v.
Commissioner, 571 F.2d 174, 178–79 (3d Cir. 1978), the Third Circuit
held that a corporation’s reliance on an accountant’s misrepresentations
about the due date of corporate income tax returns was reasonable when
the “due date was not readily determinable” and the IRS itself was
uncertain about the correct due date at trial.
KNAPPE V . UNITED STATES 15
This case is more like the first category than the second
because of the Supreme Court’s distinction between
substantive and nonsubstantive tax advice, Boyle, 469 U.S. at
251–52, which we recently recognized in Baccei v. United
States, 632 F.3d 1140, 1148–49 (9th Cir. 2011). Reading
those cases closely, we conclude that the question of when
the estate-tax return was due once an extension had been
obtained was a nonsubstantive one. For that reason, Knappe
did not exercise ordinary business care and prudence when he
relied unquestioningly on Burns’s advice about the extended
deadline, and he unreasonably abdicated his duty to ascertain
the filing deadline and comply with it.
2.
Given the vagaries of our famously labyrinthine tax laws,
one might assume that hiring a tax expert is the quintessence
of “ordinary business care and prudence.” On this view, a
taxpayer who has solicited the services of a qualified
professional and supplied him with the necessary information
would be insulated from penalties stemming from the agent’s
mistakes. After all, one hires a tax expert precisely to avoid
having to read even the most straightforward IRS prose.
Taxpayers, however, are not exempt from penalty liability
for their agents’ mistakes in all cases. In Boyle, the Court
drew a sharp distinction between substantive advice on tax
law, on which executors may reasonably rely, and
nonsubstantive advice, on which executors may not rely. See
469 U.S. at 251 (“When an accountant or attorney advises a
taxpayer on a matter of tax law, such as whether a liability
exists, it is reasonable for the taxpayer to rely on that advice.
Most taxpayers are not competent to discern error in the
substantive advice of an accountant or attorney.”) (second
16 KNAPPE V . UNITED STATES
emphasis added). The Court also explained that determining
the filing date of a tax return is a nonsubstantive matter:
“[O]ne does not have to be a tax expert to know that tax
returns have fixed filing dates and that taxes must be paid
when they are due. . . . It requires no special training or effort
to ascertain a deadline and make sure that it is met.” Id. at
251–52.
The obvious objection is that Boyle did not involve a
request to extend the default deadline for filing the estate-tax
return. It is a simple matter to determine when an estate-tax
return is due—the instructions to Form 706 explain the nine-
month deadline, under a large heading that reads, helpfully,
“When To File.” It is harder to work through the rules
governing extensions, which distinguish between extensions
to the filing deadline and extensions to the payment deadline,
as well as between domestic and foreign executors.
Our recent decision in Baccei forecloses this objection.
That case involved an executor, Baccei, who retained a
certified public accountant to prepare and file a federal estate-
tax return on behalf of the estate he was administering.
632 F.3d at 1143. The accountant represented to Baccei that
he had requested an extension of both the payment and filing
deadlines, but in fact had only requested an extension of the
filing deadline—he forgot to “check the box indicating that
a payment extension was needed” on Form 4768. Id.
Believing that his accountant had obtained both extensions,
Baccei paid the taxes late and incurred a penalty. Id.
KNAPPE V . UNITED STATES 17
Seeking relief from the penalty, Baccei cited cases
involving former 26 U.S.C. § 6653(a)4 for the proposition
first stated in Boyle that “‘[w]hen an accountant or attorney
advises a taxpayer on a matter of tax law, such as whether a
liability exists, it is reasonable for the taxpayer to rely on that
advice.’” Id. at 1148 n.3 (quoting Henry v. Comm’r, 170 F.3d
1217, 1220 (9th Cir. 1999)). We distinguished Baccei’s cases
on the grounds that they “involve[d] a taxpayer’s reliance on
the advice of tax professionals to take aggressive tax
deductions or adopt positions that can be classified as
‘reasonably debatable.’” Id. (citing Foster v. Comm’r,
756 F.2d 1430, 1439 (9th Cir. 1985)). Baccei’s penalties
could not be excused, we explained, because “the executor
does not contend that [his accountant] inaccurately advised
him of his liability under the tax code or provided him with
substantive advice on a debatable tax position.” Id.
Knappe attempts to distinguish Baccei on the grounds that
Burns gave him erroneous advice about the extension he
obtained, whereas the accountant in Baccei failed to request
an extension at all. The distinction is without a difference.
Both Knappe and Baccei instructed their respective agents to
obtain extensions of the filing and payment deadlines. Both
cases involved expert advice: both agents wrongly informed
their principals that the filing and payment deadlines had
been extended to a particular date. And both agents erred:
Burns, because he misread the instructions and thought that
the extension to the filing deadline was twice as long as was
actually granted; and the accountant in Baccei, because he did
4
Section 6653 imposed penalties for underpayment of taxes “due to
negligence or intentional disregard of rules or regulations.” See 26 U.S.C.
§ 6653(a) (1982), repealed by Pub. L. No. 101-239, Title VII, § 7721, 103
Stat. 2106, 2399–400 (1989).
18 KNAPPE V . UNITED STATES
not check the appropriate box and was awarded no extension
of the payment deadline at all. We see no reason why an
executor whose agent misinterpreted Form 4768’s
instructions should be entitled to a refund, but an executor
whose agent filled out Form 4768 improperly should be
denied one.
It is undisputed that an executor’s reliance on expert
advice constitutes reasonable cause in some cases. See, e.g.,
Kroll, 547 F.2d at 396. Taken together, Boyle and Baccei
clarify that an executor’s late filing will be excused only if he
relied on “substantive” advice about an issue of tax law.
Boyle, 469 U.S. at 251; Baccei, 632 F.3d at 1148 n.3. All we
must ask, then, is whether Knappe’s reliance on Burns
concerned a substantive tax question.
In arguing that Burns’s advice about the extended
deadline was substantive, Knappe relies heavily on Estate of
La Meres v. Commissioner, 98 T.C. 294 (1992). In La Meres,
the estate’s representative understood the correct filing
deadline for the estate-tax return, but needed additional time.
Her lawyer advised her to apply for a six-month automatic
extension of the filing deadline and a one-year extension of
the payment deadline. Id. at 304–05. When the first extended
due date for filing the estate-tax return approached, the
representative realized she still needed more time, and again
sought her lawyer’s advice. The lawyer advised her, wrongly,
that a second six-month extension of the filing deadline was
available by filing a new extension application. Id. The IRS
denied this second request for an extension but failed to
notify the representative, and the estate eventually incurred
late-filing penalties. Id. at 306, 313. The La Meres court held
that the representative had shown reasonable cause because
she reasonably relied on her attorney’s advice that a second
KNAPPE V . UNITED STATES 19
six-month extension was available, explaining that
“[a]lthough an extension referred to in [26 U.S.C. §] 6081 is
limited to 6 months, the statute does not explicitly state that
the Secretary may only grant one extension.” Id. at 318,
320–21. Thus, the court treated the question of whether
multiple filing extensions were available as a substantive one.
Knappe argues that his reliance was essentially identical to
that of the representative in La Meres: like the attorney in La
Meres, Burns also wrongly advised his client that an
additional extension was available.
We disagree that the issue here is substantive. At the time
Knappe was preparing the return, the instructions to Form
4768 were unambiguous: they stated that an “automatic 6-
month” extension is available, but that “[a]n additional
extension is available only if you are an executor out of the
country” (emphasis added). On the next page, the instructions
reiterated the point in equally unambiguous language: “An
executor may apply for an automatic 6-month extension of
time to file Form 706 . . . . Unless you are an executor out of
the country (see below), the maximum extension of time to
file is 6 months from the original due date of the applicable
return.”
The relevant section of the Internal Revenue Code is no
more ambiguous: “The Secretary may grant a reasonable
extension of time for filing any return, declaration, statement,
or other document required by this title or by regulations.
Except in the case of taxpayers who are abroad, no such
extension shall be for more than 6 months.” 26 U.S.C. § 6081
(2006). This language may be unclear about whether a
taxpayer can request serial extensions, see La Meres, 98 T.C.
at 320–21, but Knappe only ever requested a single extension.
20 KNAPPE V . UNITED STATES
We conclude that the question of when a return is
due—even when an executor has sought an extension—is
nonsubstantive. The deadlines here brook no debate. It was
clear from the face of Form 4768, from the corresponding
instructions, and from the governing statute that the
maximum available extension of the filing deadline was six
months. Burns himself testified that the deadline was
“unambiguous.” See Boyle, 469 U.S. at 251 (“[R]eliance
cannot function as a substitute for compliance with an
unambiguous statute.”). The question of how long an
extension was available was not a “debatable” one. Baccei,
632 F.3d at 1148 n.3 (distinguishing cases that involved
substantive advice on debatable tax questions); cf. Comm’r v.
Am. Ass’n of Eng’rs Emp’t, Inc., 204 F.2d 19, 20–21 (7th Cir.
1953) (excusing a company from a tax penalty where the
company relied on an attorney’s substantive advice about
whether the organization was tax-exempt). For that reason,
Knappe cannot show reasonable cause to excuse his late
filing.
3.
The line between substantive and nonsubstantive advice
may not be perfectly bright, but it is surely more luminous
than that between “delegation” and “reliance on advice,”
which many courts have used to distinguish between
reasonable and unreasonable taxpayer action. See, e.g., La
Meres, 98 T.C. at 320. In Knappe’s case, classifying his
actions as delegation or reliance is simply a matter of
framing. On one view, Knappe relied on his accountant’s
erroneous advice about a deadline. On another view,
however, Knappe delegated his duty to obtain an extension to
Burns, by allowing Burns to prepare the extension application
KNAPPE V . UNITED STATES 21
and assuming Burns had obtained a one-year extension that
was never available.
Instead, we treat the distinction between substantive and
nonsubstantive matters as coterminous with the distinction
between an executor’s delegable and nondelegable duties. We
have previously held that certain duties of the executor cannot
be reasonably delegated to an agent. See Conklin Bros.,
986 F.2d at 319 (observing that a taxpayer cannot rely on the
negligence of an agent “to escape responsibility for the
nonperformance of nondelegable tax duties”). Boyle touched
on the boundaries of an executor’s nondelegable duty:
“Congress intended to place upon the taxpayer an obligation
to ascertain the statutory deadline and then to meet that
deadline, except in a very narrow range of
situations.”469 U.S. at 249–50 (emphasis added). We went
further in Baccei, holding that the executor “was responsible
for either identifying the payment deadline and ensuring that
payment was made prior to that deadline, or confirming that
a payment extension had been properly requested and
granted.” 632 F.3d at 1149. Knappe was derelict in this duty:
he did nothing to confirm that Burns had “properly
requested” and obtained the one-year extension of the filing
deadline that Burns told him the IRS had awarded. In fact,
Burns had done neither: he improperly requested a one-year
extension, and only obtained a six-month extension.
We reaffirm that an executor may only reasonably rely on
an agent’s advice about substantive tax matters. Boyle,
469 U.S. at 250–51. Ascertaining a deadline is within the
ambit of the executor’s nondelegable duties, because a
deadline is a nonsubstantive matter. So too is confirming that
a needed extension has been sought or obtained. It follows
that ascertaining the length of any extension so obtained is
22 KNAPPE V . UNITED STATES
equally nondelegable, because ascertaining an extended
deadline is no more a substantive matter than ascertaining a
default deadline.
As to deadlines, a responsible executor will not allow
himself to be misled. When an attorney or accountant tells an
executor, “This is the deadline,” the executor bears the risk
that the advice is wrong. The rule is the same regardless of
whether the payment deadline or the filing deadline is at
issue, and regardless of whether the agent’s erroneous advice
results from his misunderstanding of the relevant rules or his
negligence in seeking the appropriate extension. Reliance on
erroneous advice about nonsubstantive tax law issues cannot
constitute reasonable cause for an executor’s failure to file a
timely return. See Baccei, 632 F.3d at 1148 n.3.
D.
We acknowledge that the result today imposes a heavy
burden on executors, who will affirmatively have to ensure
that their agents’ interpretations of filing and payment
deadlines are accurate if they want to avoid penalties. This
burden is justified by the government’s substantial interest in
ensuring that returns are timely filed. See Boyle, 469 U.S. at
249.
Moreover, any other result would reward collusion
between culpable executors and their agents. In cases like this
one, lawyers and accountants would be incentivized to claim
that they gave erroneous advice to the executor whether or
not they did in fact. The agent who fell on his sword would
risk nothing, because the waiver of the penalty would leave
the executor without damages. Even in cases in which
executors and their agents did not actively collude to
KNAPPE V . UNITED STATES 23
propound a contrived misrepresentation defense, negligent
agents would be unilaterally incentivized to persist in giving
erroneous advice to their clients, even if they realized their
error. See Sarto v. United States, 563 F. Supp. 476, 478 (N.D.
Cal. 1983) (“If a taxpayer who had been affirmatively misled
by his attorney regarding the date on which his return was
due could escape liability for a penalty while a taxpayer who
was passively negligent could not, the ultimate result would
be that attorneys who had engaged in active deceit would
escape liability while attorneys who were merely guilty of
neglect would not. . . . [T]he statute should not be enforced so
as to encourage attorneys who are merely guilty of neglect to
compound their error and further delay the filing of a required
return by engaging in active deceit of their clients.”).
E.
It was Knappe’s duty to ascertain the correct extended
filing deadline. By relying on his accountant’s advice about
that nonsubstantive matter, he failed to exercise ordinary
business care and prudence, and he cannot show reasonable
cause to excuse the penalty. We therefore affirm the judgment
of the district court.
AFFIRMED.