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Media Alerts - Estate of John R.H. Thouron v. USA - Third Circuit
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May 14, 2014
  Estate of John R.H. Thouron v. USA - Third Circuit
Headline: Reliance on tax expert may establish reasonable cause for failure to pay

Area of Law: Tax

Issues Presented: Whether the reliance on a tax expert can establish reasonable cause for late payment of taxes.

Brief Summary: The Estate of Thouron failed to pay its taxes on time because of reliance on a tax expert. The Court decided that reliance on a tax expert for matters that are not ministerial tasks may be enough to establish reasonable cause for the late payment. The taxpayer must show that he relied on the advice of the tax expert and then either inability to pay on the date or that undue hardship would result if the taxes were paid on the date.

Significance (if any):

Extended Summary: This case centers on whether reliance on a tax expert can establish reasonable cause for failure to pay taxes. The Estate of Thouron hired an executor who retained an experienced tax attorney to provide advice for tax matters. On the date the taxes were due the Estate filed for an extension of time and paid some money but less than it would ultimately owe. The balance was not paid because of reliance on the tax expert. When the Estate filed its return it owed a penalty of over $900,000 because the reliance on the tax expert resulted in a failure to elect to defer taxes and thus the penalty. The Court looked to whether the Estate should receive a refund of the penalty because the failure to pay was not willful neglect but resulted from reasonable cause.
Tax penalties apply unless the tax payer can show that the failure is due to reasonable cause and not willful neglect. To show reasonable cause, the tax payer must prove that he exercised ordinary business care and was nevertheless unable to pay the tax or would have suffered undue hardship if it was paid on that date. The Court determined that the District Court applied the Supreme Court's decision in Boyle too strictly. While both this case and Boyle are late- filing cases the Court believes the reasons for the late filing matter. The Court determined that Boyle identified three categories of late filing cases. The first is reliance on an agent for filing or paying. The second is where the tax payer files late but before the time the agent erroneously told him was available. The third is where an attorney or accountant advises the taxpayer on a matter of law.
The Court determined that the issue in this case is the second type while the issue in Boyle was the first. The Supreme Court declined to decide the second and third categories and so it was wrong for the District Court to apply Boyle so strictly. The Court held that a tax payer's reliance on the advice of an expert may be reasonable cause for failure to pay by the deadline. The taxpayer must then show either an inability to pay or undue hardship from paying at the deadline. The Court found that there is dispute of material fact as to whether the reliance occurred here.

To read the full opinion, please visit http://www2.ca3.uscourts.gov/opinarch/131603p.pdf

Panel (if known): Ambro, Hardiman, and Greenaway, Jr., Circuit Judges

Argument Date: January 14, 2014

Argument Location:

Date of Issued Opinion: May 13, 2014

Docket Number: No. 13-1603

Decided: Vacated and Remanded

Case Alert Author: Cheri Snook

Counsel: Joel L. Frank, Esq., William H. Lamb. Esq., Scot R. Withers, Esq., for appellant; Zane D. Memeger, Kathryn Keneally, Jonathan S. Cohen, Esq., Jennifer M. Rubin, Esq., William B. Russell, Jr., Esq., for appellee

Author of Opinion: Judge Ambro

Circuit: 3rd Circuit

Case Alert Circuit Supervisor: Prof. Susan L. DeJarnatt

    Posted By: Susan DeJarnatt @ 05/14/2014 12:27 PM     3rd Circuit  

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