The opinion of the court was delivered by: Savage, J.
As executor of the Estate of Robert Wooler, Thomas Freeman seeks a refund of $31,090.34, the amount the Internal Revenue Service assessed as penalty for the late filing of the estate tax return, plus interest assessed on that penalty. Freeman contends that the estate attorney's illness is "reasonable cause" for the late filing under the Internal Revenue Code (the "Tax Code"), 26 U.S.C. § 6651(a)(1). Alternatively, he challenges the IRS's calculation of the penalty and related interest. Relying on United States v. Boyle, 469 U.S. 241 (1985), the government counters that the late filing is inexcusable because the estate had a non-delegable duty to file the return. It also contends that the IRS properly calculated the late filing penalty and interest.
After a bench trial held on January 17, 2012, we conclude that the estate did not have reasonable cause to file its estate tax return after the deadline. Additionally, we find that the IRS's assessment of the late filing penalty and resulting interest was correct. Therefore, we shall enter judgment in favor of the United States.
Robert Wooler died on April 25, 2003. In his will, Wooler named Freeman executor of his estate. Soon after Freeman became executor, he retained attorney Dennis Byrne to represent the estate.
Byrne, who held himself out as an experienced estate attorney, handled the administration of the estate, including the tax work. Mail to the estate went directly to Byrne's office. Byrne, without Freeman's participation, managed all correspondence with the IRS. He assumed responsibility for ensuring that the estate's tax returns were filed and its tax payments made.
Under the Tax Code, the estate tax return was due on January 25, 2004, nine months after Wooler died. See 26 U.S.C. § 6075(a) (2006). The estate tax was payable on the same day. See id. § 6151(a).
Freeman spoke to Byrne about filing the return soon after hiring him, and several times after that. Freeman relied on Byrne's assurances that he would handle the estate's tax obligations.
Freeman and Byrne initially met monthly to discuss estate business. However, over time, Byrne became increasingly difficult to reach and their discussions were limited to sporadic phone conversations initiated by Freeman. Unbeknownst to Freeman, Byrne was suffering from a litany of physical and mental ailments. These ailments led Byrne to neglect his duties to the estate, including the filing of the estate tax return. Freeman later learned that Byrne had embezzled money from the estate.
In 2007, Freeman received a bill from the IRS for the outstanding estate tax and related penalties and interest. The IRS levied two penalties, one under § 6651(a)(1) of the Tax Code for filing the estate tax return late and another under § 6651(a)(2) for paying the estate tax after the deadline. The IRS also assessed interest on the overdue estate tax and the § 6651(a)(1) penalty, but not on the § 6651(a)(2) penalty.
Freeman then confronted Byrne, who advised him that the estate tax return was three years past due. On March 12, 2007, the estate filed its return together with a payment of $138,179.27, the amount of tax due as shown on the return.
In late 2003 or early 2004, Freeman learned from Byrne that the estate had not yet obtained a valid federal tax ID number, which was needed to pay its income taxes. As a result of this failure, a total of $284,304.40 was withheld from the estate's bank accounts. The funds were paid to the IRS to satisfy the estate's income tax obligations on April 15, 2006.
In April 2008, the IRS, determining that the estate's income tax withholdings were more than enough to satisfy its income tax liability, credited $72,995.92 of those withholdings to the estate's outstanding estate tax liability. The IRS applied that credit to the estate tax as of April 15, 2006--the day the IRS received the withheld funds for the income tax. It then issued an income tax refund of $211,308.48.
The IRS also abated $11,218.52 in interest from the estate tax liability to account for the application of the $72,995.92 credit. Because the estate's original payment with the estate tax return and the credit from the income tax withholdings satisfied the ...