The IRS failed to act on the refund claim. Tom further included a reasonable cause statement that requested full abatement of the late-filing and late-payment penalties. With the return, Tom included payment for the estate tax and an estimate of potential penalties for the late filing of the Form 706 and the late payment of estate tax. Recognizing now that the estate had a Form 706 filing obligation, Tom filed a Form 706 on April 9, 2019. Upon a further follow up with the Decedent’s tax professionals, Tom learned that the Decedent filed a Form 709 for his 2012 tax year reporting gifts of $5,094,000. Prior to receiving this new information, Tom had requested gift tax returns (“ Forms 709”) from the Decedent’s tax professionals but had not received any indication that the Decedent had made gifts or filed Forms 709 with the IRS. Because these were lifetime gifts, if the value of the trust assets plus the value of the Decedent’s estate exceeded $5,490,000, it would have required Tom to file a Form 706 (now late). (“ David Jr.”) informed Tom that the Decedent “might have” established and funded various trusts during his lifetime. After some additional due diligence, Tom and his team of tax professionals agreed with the attorney, and valued the estate at approximately $1 to $2 million.Īlmost two years later, though, on February 26, 2019, the Decedent’s son, David Leighton, Jr. However, on March 13, 2017, an attorney advised Tom that a Form 706 filing was not required because the value of the Decedent’s estate did not exceed $5,490,000. Under section 6075(a) of the Code, the executor, Tom Leighton (“ Tom”), was required to file a Form 706 within 9 months of the Decedent’s death. It is discussed infra.ĭavid Leighton (the “ Decedent”) passed away in January 2017. What happens then? Is the estate liable for late-filing and late-payment penalties?Ī recent decision in the United States Court of Federal Claims touches on this very issue. But, because a Form 706 filing obligation arises only in certain instances-when the decedent’s gross estate and adjusted taxable gifts exceed a specified floor, which varies year to year-in many cases, an executor may not discover the need for filing until after the deadline. For example, the late-filing penalty applies when an executor fails to timely file an estate tax return (“ Form 706”) and timely pay estate tax payments. The late-filing and late-payment penalties apply to a variety of tax returns and tax obligations. that the taxpayer acted reasonably under the particular set of circumstances. To avoid these penalties, taxpayers must generally show “ reasonable cause,” i.e. One common group of penalties, associated with the late filing of a tax return and the late payment of tax, are housed in section 6651 of the Code. The Internal Revenue Code (the “ Code”) contains over 150 civil tax penalties for various conduct and non-conduct.
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