Estate is entitled to refund of Sec. 6651 late-filing penalty: The full tax liability had been paid by the extended due date.

Author:Pirrone, Maria M.

A district court held that an estate was entitled to abatement of a penalty for filing an estate tax return late. The court found the estate had reasonable cause for the late filing and that the IRS's denial of the abatement request was arbitrary and capricious.

Facts: The decedent, Agnes Skeba, died on June 10,2013. The estate was valued at approximately $13.1 million, consisting mosdy of illiquid real estate. On March 6,2014, four days before the federal estate tax return was due, the plaintiff, Joseph Skeba, through counsel, filed with the IRS Form 476%, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, with a partial payment of the estate tax of $725,000. A letter accompanied the payment, explaining that all of the liquid assets of the estate had been used to pay state and federal estate tax liabilities. In addition, the letter explained that a mortgage application to refinance the real estate was pending to satisfy the balance of the federal estate tax liability.

On March 18,2014, eight days after the original due date, the estate made a second payment to the IRS of $2,745,000, making the total estate taxes paid $3,470,000. Then, on June 25,2014, the IRS approved the application for an extension to file the estate tax return until Sept. 10,2014. On July 8,2014, the IRS approved the estate's application for an extension until Sept. 10,2014, to pay the estate tax, even though the tax already had been paid.

On June 30,2015, more than nine months after the extended due date, the estate filed its estate tax return, reporting a net estate tax due of $2,528,838. The previous estimated payment of $3,470,000 was credited against the estate tax, for an overpayment of $941,162. The IRS assessed a 25% failure-to-file penalty of $450,960. The estate requested an abatement of the penalty.

The estate, through an attorney, enclosed a letter with the abatement request giving reasons why the filing of the estate tax return had been delayed: a pending will contest in state court, health concerns of the plaintiff in the will contest, and valuation issues.

In response, the IRS stated that the reasons provided did not establish reasonable cause or show due diligence. After appealing the determination and receiving no response, the estate filed suit in district court, and both sides moved for summary judgment.

Issues: Sec. 6651(a)(1) provides for the assessment of a penalty with respect to a...

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