Robert W. Boyle, of the Estate of Myra W. Boyle, Deceased, Plaintiff v. United States ( 1983 )

WILLIAM J. CAMPBELL, Senior District Judge.

The United States brings this appeal challenging the district court’s decision granting summary judgment for the plaintiff, Robert Boyle, in his tax refund suit. The Internal Revenue Service (IRS) had assessed a penalty against the plaintiff in the amount of $17,124.45 pursuant to 26 U.S.C. § 6651(a)(1) for the late filing of a federal estate tax return. Boyle paid the penalty and then brought this refund action. After completion of discovery, each party submitted a motion for summary judgment. The district court granted summary judgment for the plaintiff, concluding that the penalty was not justified because the untimely filing was due to a “reasonable cause” within the meaning of 26 U.S.C. § 6651(a)(1). The IRS contends that the district court’s decision was erroneous and that its cross-motion for summary judgment should have been granted. Jurisdiction is predicated on 28 U.S.C. § 1291 and is not at issue.

The underlying facts of the case are not in dispute.¹ The plaintiff’s mother died on September 14, 1978 and he was appointed executor of the estate in her will. Shortly after his mother’s death, Boyle retained Ronald Keyser of the law firm of Eliff, Keyser and Hallberg to serve as attorney for the estate. Keyser had practiced law for over twenty years, specializing in the areas of real estate and probate. During discussions with the attorney, the plaintiff was informed that the filing of a federal estate tax return would be required, however he was not informed, nor did he inquire, as to the deadline for filing it. Under the applicable provision, 26 U.S.C. § 6075(a), the return was due on June 14, 1979, i.e., nine months after the decedent’s death.

It is undisputed that Boyle had no experience or expertise in the field of federal estate taxation,² and it is evident that he relied solely on his attorney for instruction and guidance. There is no evidence that he was uncooperative with Mr. Keyser or that he was untimely in providing him with information, records, etc. Boyle and his wife contacted Mr. Keyser numerous times inquiring about the progress of the estate and the preparation of the federal estate tax return. When he called Mr. Keyser on September 6, 1979, the plaintiff was informed for the first time that the return was, in fact, past due. The matter had apparently been overlooked due to a clerical error in omitting the Boyle estate from Keyser’s master calendar. As a result, the attorney was not apprised of the due date in a timely manner. Thereafter, the plaintiff met with Keyser on September 11, 1979 and the return was filed on September 13, 1979.

On October 22,1979, the IRS notified the plaintiff that the estate was being assessed an additional $17,124.45 as a penalty for the late filing as well as $1,326.56 as interest. The plaintiff paid those amounts and filed a claim for refund of the penalty. The IRS took no action on the refund request, so the plaintiff filed this action in the district court.

The district judge concluded that the disposition of the case was controlled by Roh-rabaugh v. United States, 611 F.2d 211 (7th Cir.1979) which held that, in certain situations, reliance on counsel could be considered reasonable cause for purposes of 26 U.S.C. § 6651(a)(1). The government contends that Rohrabaugb is a minority view and should be overruled. Alternatively, the government argues that the facts of this case are distinguishable from those in Roh-rabaugh. For the reasons stated below, we affirm.

In Rohrabaugh v. United States, 611 F.2d 211 (7th Cir.1979) the federal estate tax return was filed three months and a day after its due date. The operative facts were virtually identical to those in the case sub judice:

Here an inexperienced taxpayer wholly unaware of the time requirements for filing a federal estate tax return selected a competent tax expert, supplied him with all the necessary and relevant information, requested him to prepare all necessary documents including tax returns, relied upon his doing so, but nevertheless maintained contact with him from time to time during the administration of the estate. 611 F.2d at 214.

The court adopted the standard that reliance upon counsel would be “reasonable cause” when

(1) the taxpayer is unfamiliar with the tax law; (2) the taxpayer makes full disclosure of all relevant facts to the attorney or accountant he or she relies upon; and (3) the taxpayer has exercised ordinary business care and prudence. 611 F.2d at 615, citing Haywood Lumber & Mining Co. v. Commissioner, 178 F.2d 769, 771 (2d Cir.1950); Giesen v. United States, 369 F.Supp. 33 (W.D.Wis.1973).

Applying that analysis, the court concluded that, under the facts of that case, “reasonable cause” had been shown and the penalty was therefore wrongfully imposed. The court noted that its holding was to be limited to the facts of the case, and that the case should not be construed as adopting a per se rule that reliance on counsel constituted reasonable cause.

Even limiting the holding in Rohrabaugh to its facts, we believe that case controls the disposition of this case. The government contends that this case is distinguishable because Boyle had more business experience than the plaintiff in Rohrabaugh. We note the factual distinction but do not find it significant. Boyle’s business experience did not encompass the preparation or filing of tax returns and therefore would not support any inference that he, in fact, knew the filing deadline, i.e., negating factor (1) stated above. Even assuming that his background would justify the application of a higher standard of business care and prudence, see factor (3) above, we do not find that he failed to exercise such care. He hired competent counsel soon after his mother’s death and cooperated fully with him. Furthermore, he maintained contact with his attorney and did not simply abandon the estate once he had delegated the legal functions. Therefore, we conclude that under Rohrabaugh, Boyle qualifies for a refund of the penalty.

The government’s alternative argument is that we should overrule Rohrabaugh because it conflicts with United States v. Kroll, 547 F.2d 393 (7th Cir.1977) and Fleming v. United States, 648 F.2d 1122 (7th Cir.1981) is a minority view and is bad law. We do not find any conflict in the law of the Seventh Circuit. The court in Fleming reconciled the case law in the following manner:

[I]n Rohrabaugh the taxpayer did not know the due date for the filing of the return as did the taxpayer in Kroll, as well as in the instant case. 648 F.2d at 1126.

There is another significant distinction. In both Kroll and Fleming, the taxpayer was informed of the passing of the deadline, and yet did not take timely or effective action to rectify the situation. However, in Roh-rabaugh and this case, once the taxpayer was made aware of the deadline quick action was taken to file the return. Thus, ordinary business care and prudence was demonstrated and any suggestion of willful neglect was negated.

The government also argues that Rohra-baugh is contrary to the majority view on this issue. However, our reading of the cases reveals only three circuits that have unequivocally adopted a per se rule that reliance on counsel is not “reasonable cause” within the meaning of 26 U.S.C. § 6651(a)(1), see Ferrando v. United States, 245 F.2d 582 (9th Cir.1957); Millette Assoc. Inc. v. Commissioner, 594 F.2d 121 (5th Cir.), cert. den. 444 U.S. 899, 100 S.Ct. 207, 62 L.Ed.2d 135 (1979); Estate of Lillehei v. Commissioner, 638 F.2d 65 (8th Cir.1981). There are other circuits which have found that reliance on counsel was not “reasonable cause,” but the determination was based on the facts of the case, and not on the application of the per se rule advocated by the government, see e.g. Estate of Dutten-hofer v. Commissioner, 49 T.C. 200 aff’d per curiam, 410 F.2d 302 (6th Cir.1969); Estate of Lammerts v. Commissioner, 456 F.2d 681 (2nd Cir.1972).

The government argues that the Rohra-baugh decision is bad law because it encourages executors to remain ignorant of the filing deadline and because:

[A]n attorney may well avoid giving such information even where the executor does make an inquiry, since it would be not only in the estate’s best interest, but also the attorney’s own interest to keep the executor uninformed of this crucial matter.

As Judge Pell noted in Rohrabaugh, since extensions of time to file an estate tax return are available, there is no reason to believe that an executor would have any motivation to remain ignorant of the filing date in order to obtain immunity for a late filing. Furthermore, in light of the fact that Rohrabaugh adopts a case-by-case analysis, it would be foolish for an executor to assume that he or she would obtain judicial relief. For the same reasons, we cannot accept the government’s assertion that our position on this issue encourages attorneys to knowingly withhold information from their clients. Furthermore, we note that the “Pandora’s box” which was supposedly opened by Rohrabaugh, see Judge Swygert’s dissent, Rohrabaugh, 611 F.2d at 219, has not in fact appeared. There has been no flood of lawsuits involving late filings of tax returns and, for the reasons discussed above, we do not expect one.

The circuits which have adopted a per se rule that reliance on counsel is not “reasonable cause” have relied, in part, on their conclusion that the executor’s duty to file a timely estate tax return is non-delegable. However, it is very easy for judges to speak of non-delegable duties and to impose on laymen standards of “reasonable care” for handling their legal affairs. Judges have, of course, extensive education and experience in the law. Ordinary laymen do not and they view most legal proceedings as somewhat imposing and mysterious. It is, therefore, not surprising that they should rely on their attorneys to handle their legal affairs. We should be hesitant to find such reliance unreasonable especially when the three factors, discussed supra, are present and where there are no facts which should have put the executor on notice that his legal affairs were being neglected. For these reasons, we decline to overrule Rohra-baugh and therefore affirm the district court.

1 . We note that the government has not argued, either in the district court or in this court, that a genuine issue of fact exists and that a trial is necessary.

2 . The plaintiff had been executor of his father’s estate some twenty years earlier, however, there is no evidence that a federal estate tax return was required in that situation. The government notes that the plaintiff had served as president of an earth moving and grading business for approximately thirty years and had signed corporate tax returns during that period. However, the evidence revealed that auditors and accountants prepared and filed the returns.