1 Nichols Patrick CPE, Inc. The Tax Curriculum SM

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1 CURRENT FEDERAL TAX DEVELOPMENTS JANUARY 12, 2015 Section: 274 Attorney's Expenses Related to Aircraft Primarily Found to Be Personal in Nature, Most Deductions Disallowed... 2 Citation: Peterson v. Commissioner, TC Memo , 1/5/ Section: 581 Money Services Business Is Not a Bank, Loss on Disposal of Securities Required by Regulators is Not an Ordinary Loss... 3 Citation: Moneygram International, Inc. and Subsidiaries v. Commissioner, 144 TC No. 1, 1/7/ Section: 6201 Letter from Registered Agent That Stated 1099 Had Been Issued to Taxpayer and Dividends Paid Not Found Sufficient for IRS to Carry Burden Under 6201(d)... 6 Citation: Ebert v. Commissioner, TC Memo , 1/7/ Section: 6414 Special Procedures to Handle Payroll Tax Issues on Transit Benefits Made Retroactively Nontaxable by Tax Increase Prevention Act of 2014 Issued... 7 Citation: Notice , 1/8/ Section: 6651 Attorney's Malpractice in Misleading Estate Regarding Having Filed for an Extension Was Not Reasonable Cause to Avoid Late Filing Penalty... 8 Citation: Estate of Escher v. United States, USDC SD Ohio, Case No. 1:13-cv-00705, 2015 TNT 5-12, 1/6/

2 SECTION: 274 ATTORNEY'S EXPENSES RELATED TO AIRCRAFT PRIMARILY FOUND TO BE PERSONAL IN NATURE, MOST DEDUCTIONS DISALLOWED Citation: Peterson v. Commissioner, TC Memo , 1/5/15 IRC 274(d) provides additional documentation requirements for a taxpayer to obtain a deduction for certain items, including travel related to listed property which, in the case at hand, was an airplane. The decision in the case of Peterson v. Commissioner, TC Memo deals with the fact that it s not enough to have records those records also have to support the deduction in question. Mr. Peterson was an attorney in Southern California and an amateur pilot. In 2005 he purchased a Cessna Turbo Skylane for $332,000, ostensibly to be used in his business. The costs of the plane (both the acquisition costs and the operating costs) were such that he decided to abandon renting office space and instead conducted his practice out of his home. The taxpayer also decided to become instrument rated as a pilot which would enable him to fly in diverse conditions. To obtain and maintain this rating the taxpayer had to complete special training and then fly the plane regularly, insuring he performed certain tasks and then logged those tasks. Mr. Peterson kept a detailed log of his flights that included a record of which airport he departed from, the airports he visited, the time the flight took place and the tasks relevant to maintaining his instrument rating. He labeled each flight as a training flight (those to secure and maintain his instrument rating), maintenance flight (flights made to insure the Cessna was in working order) and business flights. The latter category ended up being any flight that wasn t in the first two categories he showed no personal flights. That turned out to be where things began to go wrong for Mr. Peterson. The court determined that many of his flights (including one to see his parents in North Dakota) were clearly personal in nature. He also flew many very short flights 60-65% of his flights were to airports within 100 miles of his home. While Mr. Peterson claimed he did so to avoid Los Angeles traffic, the court did not find that explanation reasonable given the high cost of the aircraft and the fact that many of those trips, even in the Los Angeles area, would have taken less than hour to drive at a much lower cost. The Court also found that Mr. Peterson flew primarily because he enjoyed flying. The Court specifically found that he only real justification for Mr. Peterson s instrument rating was not driven by business need, but rather because it posed a challenge for him. Only in a very few occasions were the flights Mr. Peterson flew related to things such as court appearances, witness interviews or depositions all other business travel ended up being of a type the Court did not find truly constituted business travel. He failed to provide evidence for any of these flights of a relationship to work for an actual client, and trips he labeled as marketing and client development often ended up with flights to resort locations with the Court clearly suggesting that Mr. Peterson was there for personal pleasure. The Court summarized its view of Mr. Peterson s business flights as follows: These flights can be grouped into the following main categories: (1) trips on which he visited or was accompanied by family members, engaged in volunteer work, or discharged other personal duties; (2) trips to investigate supposed investment opportunities; (3) trips related to pilot safety, airplane insurance, aircraft fuel, FAA medical exams, and other aviation-related matters; (4) trips to alleged conventions, conferences, and similar events; and (5) trips to engage in supposed "marketing" or "potential client development." Flights in the first three categories were clearly personal, reflecting petitioner's family or personal obligations, personal finances, or love of flying. As to the fourth category, petitioner produced no convincing evidence of actual attendance at any conventions or conferences or any direct connection between such meetings and his law practice. As to the fifth (and largest) category, petitioner produced 2

3 no documentary evidence and no credible testimony that any of these flights, many of which were to resort destinations, had a bona fide business purpose. The Court found that the training and maintenance flights were not deductible, since they represented personal expenses. As the Court noted: The evidence established that petitioner immensely enjoys flying. Becoming an instrument-rated pilot represented a challenge and a personal accomplishment and enabled him to fly more often to more places. His training and maintenance flights constituted his pursuit of a hobby or represented the costs of engaging in this hobby. Section 262 expressly disallows a deduction for personal, living, or family expenses. The Court found that, in fact, the IRS appeared to have been overly generous. Based on the facts, the Court found it difficult to consider the aircraft expenses to be ordinary and necessary under 162 in any amount, noting: A powerful argument can be advanced that none of these expenses should be regarded as ordinary and necessary. The cost of owning and operating a private airplane would not appear to be normal, usual, and customary for an attorney in solo practice, especially one who makes 60% to 65% of his flights to destinations within 100 miles of his home. Nor would it seem reasonable, at the cost of $236 to $433 per flight hour, to fly to destinations that can be reached by car in less than an hour. Nevertheless, the Court concluded the IRS had conceded, at least to the extent of the 27% of the costs the agency allowed as a deduction, that the expenses met the ordinary and necessary test. SECTION: 581 MONEY SERVICES BUSINESS IS NOT A BANK, LOSS ON DISPOSAL OF SECURITIES REQUIRED BY REGULATORS IS NOT AN ORDINARY LOSS Citation: Moneygram International, Inc. and Subsidiaries v. Commissioner, 144 TC No. 1, 1/7/15 If a taxpayer ends up with a worthless security, the loss from writing off that security is treated as a capital loss. While, generally, to have a capital gain or loss there must be a sale, IRC 165(g) provides a special rule for worthless securities. The section provides: (g) Worthless securities (1) General rule If any security which is a capital asset becomes worthless during the taxable year, the loss resulting therefrom shall, for purposes of this subtitle, be treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset. (2) Security defined For purposes of this subsection, the term "security" means-- (A) a share of stock in a corporation; (B) a right to subscribe for, or to receive, a share of stock in a corporation; or (C) a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or by a government or political subdivision thereof, with interest coupons or in registered form. As well, no loss is allowed unless the item becomes worthless or the taxpayer actually disposes of the security in a taxable transaction. 3

4 However the above rule does not apply to banks. IRC 582(a) provides an exception to the application of 166(g) cited above for securities held by a bank: (a) Securities Notwithstanding sections 165(g)(1) and 166(e), subsections (a) and (b) of section 166 (relating to allowance of deduction for bad debts) shall apply in the case of a bank to a debt which is evidenced by a security as defined in section 165(g)(2)(C). In the case of Moneygram International, Inc. and Subsidiaries v. Commissioner, 144 TC No. 1, the question was whether the money transfer service Moneygram (which is the largest issuer of money orders, as well as providing immediate transfers of cash from location to location) qualified as a bank. Moneygram is generally regulated under state law, most often by a banking commission or similar office. These state regulations impose capital requirements on the entity which can be satisfied by holding highly rated debt instruments. During the financial crisis during many of the asset backed securities that Moneygram held (and they held over $4 billion of such assets) were downgraded from A or higher ratings to junk status. Not surprisingly, the value of those investments also dropped dramatically. This caused Moneygram to fall out of compliance in many cases with state laws for minimum capital and permissible investments. To deal with that problem, Moneygram underwent a recapitalization and either wrote off or wrote down a large volume of such securities. On its corporate return Moneygram claimed that these represented bad debt losses that gave rise to ordinary loss deductions. The IRS claimed that such losses could be treated as ordinary bad debt losses only if Moneygram qualified as a bank under IRC 582. Moneygram argued that, in fact, it should be treated as bank for federal tax purposes, arguing that it met the requirements of IRC 582. A bank is defined for these purposes in IRC 581, which provides: For purposes of sections 582 and 584, the term bank means a bank or trust company incorporated and doing business under the laws of the United States (including laws relating to the District of Columbia) or of any State, a substantial part of the business of which consists of receiving deposits and making loans and discounts, or of exercising fiduciary powers similar to those permitted to national banks under authority of the Comptroller of the Currency, and which is subject by law to supervision and examination by State or Federal authority having supervision over banking institutions. Such term also means a domestic building and loan association. The Tax notes that Moneygram did not claim to be a building and loan association, nor does it exercise fiduciary powers. Thus the question becomes whether the organization is a bank where a substantial part of the business consists of receiving deposits and making loans subject to supervision an examination by the proper governmental authorities. The Tax Court decided that there were two tests that Moneygram had to meet first it must meet the general definition of a bank and, second, it must show that a substantial part of its business consists of receiving deposits and making loans, despite Moneygram arguing that, in fact, the section defines a bank as any entity that is subject to the proper supervision and meets the substantial part test. The Court notes: The statute s text makes clear that this first requirement--that an entity be a bank as the term is commonly understood--is a distinct requirement, separate from the requirements that it accept deposits, make loans, and be subject to banking regulation. These latter requirements are set forth in a pair of restrictive relative clauses that follow the principal clause. These clauses specify two features that an entity must have, apart from being a bank as commonly understood, in order to be a bank within the 4

5 meaning of section 581: a substantial part of its business must consist of receiving deposits and making loans, and it must be subject to regulation by Federal or State banking authorities. Basic rules of English syntax require that the principal clause of a sentence be given meaning independent from that of succeeding subordinate clauses. And elementary rules of statutory construction require that we interpret section 581 so that no clause, sentence, or word is rendered superfluous, void, or insignificant. See Duncan v. Walker, 533 U.S. 167, 174 (2001); Sophy v. Commissioner, 138 T.C. 204, 211 (2012). Looking at whether Moneygram qualified as a bank as the term is commonly understood, the Court concluded that Moneygram did not meet that test. Citing the Fourth Circuit s opinion in Staunton Indus. Loan Corp. v. Commissioner, 120 F.2d 930 (4th Cir. 1941), rev'g 42 B.T.A (1940) the Tax Court concluded that, to be a bank, Moneygram had to meet three tests: The receipt of deposits from the general public, repayable to the depositors on demand or at a fixed time; The use of deposit funds for secured loans; and The relationship of debtor and creditor between the bank and depositor. The Court found that Moneygram met none of these tests. Moneygram argued that it received funds from its customers from the sale of money orders and other transfer services, for which it held the funds in temporary investment funds until the funds were claimed, which it found to be deposits. The Tax Court disagreed, finding that Moneygram did not receive deposits from the general public (the funds came from Moneygram customers who sold money orders and similar items) and the funds were not held to be reclaimed by those individuals, but rather by the party to whom the money order or similar item had been issued. Moneygram also did not use those deposits to make secured loans. Moneygram pointed out that organizations who sold money orders had funds due to Moneygram that would be paid at a later (albeit only a few days later) date. But the Court pointed out that the agreement with those customers made clear the funds were held in trust for Moneygram and, unlike bank loans, no interest was charged on these advances unless the customer failed to transfer the funds back to Moneygram at the time provided for in the agreement a bank generally charges interest from the initiation of the loan until the date of repayment. Moneygram also classified these amounts as accounts receivable and not loans on its books. As well, Moneygram doesn t make use of what it claimed to be the deposits it received to make these loans as the funds were obtained from the buyers of the money orders and similar instruments by Moneygram s customers, not by Moneygram issuing cash from its investment funds. Moneygram also is not subject to regulation as a bank federal specifically treated Moneygram as money services business (MSB) which provided that such services are not a bank. Moneygram was not eligible for membership in the Federal Reserve and while it is often regulated by state banking departments, it is licensed and regulated in such states as a money transmitter and not a bank. Even though, as the Court notes, its finding that Moneygram fails to meet the common definition of a bank would preclude treating these losses as ordinary, the Court goes on to note that even if the Court accepted Moneygram s view that the statute should be read as defining any organization that meets the two tests as a bank, Moneygram would fail because a substantial portion of its business is not the receiving of deposits and making loans. A deposit, in the view of the Tax Court, generally refers to funds placed with a financial institution for safekeeping, repayable to the depositor on demand or at a fixed date in the future. As was noted earlier, the depositor (be it either the buyer of the money order or the customer of Moneygram that sold the money order) is not the party that will reclaim the funds in the future rather it is a third party to whom funds are being transferred. 5

6 The Court notes: MoneyGram s business consists of moving its customers money from point A to point B as quickly as possible. The funds it holds pending completion of that service are not placed with it for safekeeping and are not held for any meaningful period of time. Its money order customers are explicitly told that they are not making deposits, and these funds are reflected on its financial statements not as deposits but as payment service obligations. Because receiving deposits does not constitute any meaningful part, much less a substantial part, of MoneyGram s business, it does not qualify as a bank under section 581. The Tax Court also finds that Moneygram did not make loans as the term is commonly understood. The Court notes: Most corporations have, among the assets on their balance sheet, accounts receivable from customers, agents, and other persons. Any company having accounts receivable must specify the period within which it expects its customers to pay such accounts. Some invoices may say that they are payable immediately upon receipt; other invoices may afford the customer 30 days to pay. MoneyGram s deferred remittance agreements simply specify the period--generally, half a week--within which its agents are expected to transmit to MoneyGram the sums they owe MoneyGram. These agreements do not give rise to loans within the meaning of section 581, any more than garden variety payment terms specified by any business give rise to loans. Were that not so, any company that has accounts receivable on its balance sheet could plausibly contend that it satisfies this requirement for bank status. Thus, Moneygram did not qualify for ordinary loss treatment for these items. While capital loss treatment is available, that did Moneygram no good as the Tax Court pointed out, Moneygram had no capital gains against which to offset capital gains and, as a C corporation, capital losses can only be used to offset capital gains. As well, unlike individuals, for C corporations such losses may not carried forward indefinitely rather, the losses can are first carried back three years against any capital gains those years, then carried forward five years. [IRC 1212(a)] If there are insufficient gains to offset the losses in those years, the capital losses go unused. SECTION: 6201 LETTER FROM REGISTERED AGENT THAT STATED 1099 HAD BEEN ISSUED TO TAXPAYER AND DIVIDENDS PAID NOT FOUND SUFFICIENT FOR IRS TO CARRY BURDEN UNDER 6201(D) Citation: Ebert v. Commissioner, TC Memo , 1/7/15 The IRS computers regularly issue CP2000 notices to taxpayers based on Forms 1099 that the IRS receives which show income not reported on the taxpayer s return. Such matching programs allow the IRS to obtain taxes in what is, for the agency, a relatively painless and low friction process where they start with the numbers on the Form 1099 and presume that income is taxable to the taxpayer. However, IRC 6201(d) provides a limit on the IRS s ability to do no more than send a bill based on a Form 1099 it received. That section provides: In any court proceeding, if a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return filed with the Secretary under subpart B or C of part III of subchapter A of chapter 61 by a third party and the taxpayer has fully cooperated with the Secretary (including providing, within a reasonable period of time, access to and inspection of all witnesses, information, and documents within the control of the taxpayer as reasonably requested by the Secretary), the Secretary shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return. 6

7 A taxpayer was able to make use of this provision to fend off the IRS in the case of Ebert v. Commissioner, TC Memo The issue in question regarded dividends purportedly paid to the taxpayer on shares of Burlington Northern Santa Fe Corp. (BNSF) by Computershare Investor Services, which was the registered agent for BNSF for Mr. Ebert was the registered owner of 1,176 shares of that stock. The IRS computer had a record that Computershare reporting paying Mr. Ebert $1,410 in dividends on the BNSF stock in Mr. Ebert claimed he never received any of these checks, nor did he receive a Form The taxpayer had made numerous attempts over the years to contact Computershare and the successor registered agent, Wells Fargo, regarding dividends he wasn t receiving and other matters related to the BNSF shares. In response to Mr. Ebert s argument that he hadn t received either the dividends or the Form 1099-DIV, the IRS contacted Computershare and received a letter dated February 28, 2014 that stated they had issued a Form 1099-DIV to the taxpayer for 2009 and attaching a copy of that 1099DIV. The 1099-DIV they attached was properly addressed to the taxpayer s address. The IRS sent a copy of that letter to the taxpayer along with the The taxpayer immediately called the number shown on the Computershare letter and found there was only a recording at the number on the letter and the number provided no opportunity to inquire about the details in the letter. The Tax Court found that the taxpayer s testimony was believable and, therefore, did not find that the February 28, 2014 letter from Computershare was sufficient proof of the receipt of the income by the taxpayer. With the burden being on the IRS to carry the issue, that meant that the Court found the taxpayer did not owe the disputed tax. SECTION: 6414 SPECIAL PROCEDURES TO HANDLE PAYROLL TAX ISSUES ON TRANSIT BENEFITS MADE RETROACTIVELY NONTAXABLE BY TAX INCREASE PREVENTION ACT OF 2014 ISSUED Citation: Notice , 1/8/15 The IRS has issued procedures for employers who paid transit benefits during 2014 that were included in employee s income, but which since qualified as excludable benefits due to the increase in the limits for such benefits from $130 to $250 per participating employee due to Section 103 of the Tax Increase Prevention Act of The guidance is found in Notice The exact procedures to be followed by an employer depend upon whether the employer has or has not already filed a Form 941 for the fourth quarter of 2014, as well as whether the employer has or has not provided employees with their copies of Form W-2 for Normally an employer would apply for a refund of FICA and Medicare (other than Additional Medicare Tax) only after repaying the employee the overwithheld amounts. The employer would do so by filing a Form 941-X for each taxable period involved. If an employer has not yet filed a fourth quarter Form 941 may, in lieu of filing Forms 941-X for each affected quarter, reduce reported FICA wages (including, interestingly enough, any Additional Medicare taxable wages) on the fourth quarter 941. In order to use this method, the employer must repay the overwithheld FICA, Medicare and Additional Medicare Tax to the affected employees before filing the fourth quarter Form 941. As well, employers qualifying for and electing to use this procedure will not need a statement from each employee confirming that he/she has not made a claim and will not make a claim for the overcollected FICA tax for the year. 7

8 The employer using this method is to reduce the liability of the quarter starting with the last liability of the quarter. That liability is to bear the entire balance of the adjustment if the liability is greater than the adjustment. Otherwise the employer will continue reducing liabilities in reverse chronological order until the entire reduction is absorbed. Negative numbers may not be reported either on Line 14 of Form 941 or Schedule B of Form 941. The same rules will apply to all other employment tax returns reporting FICA (such as Spanish-language returns or those for U.S. possessions) and for taxes under the Railroad Retirement Act. Employers who do not use this method will need to file Forms 941-X for each affected period and will not be allowed to refund the Additional Medicare Tax withheld. Rather the employees will treat that as additional income tax withheld on their tax return for the year. Employers that have not yet furnished Forms W-2 to their employees and who have repaid the taxes to employees will report the adjusted withholdings and wage amounts on the Forms W-2. As was noted above, if the employer does not use the special procedures (that is, the employer uses the normal procedures) then the employer will not reduce the Additional Medicare Tax withheld since no repayment or reimbursement is generally allowed for such taxes (though employers using the special procedures are allowed and required to do so and those employers will reduce that withholding). In no case will the employer reduce or refund federal income tax withheld due to this change. The employee will simply pick that up on their tax return. If the employer reimbursed the employees for overcollected taxes after issuing Forms W-2 to the employees (but before filing the government copy of the forms), the employer must check the void box at the top of each incorrect Form W-2 (Copy A) and then prepare new Forms W-2 with the proper amounts and send the new Forms W-2 (Copy A) to the Social Security Administration. The employer must write CORRECTED at the top of each of the affected employee s new copies (B, C and 2) of the Form W-2 and furnish those to the employees. If the employer has already filed the Forms W-2 with Social Security, they must file Forms W-2c to correct the reporting. SECTION: 6651 ATTORNEY'S MALPRACTICE IN MISLEADING ESTATE REGARDING HAVING FILED FOR AN EXTENSION WAS NOT REASONABLE CAUSE TO AVOID LATE FILING PENALTY Citation: Estate of Escher v. United States, USDC SD Ohio, Case No. 1:13-cv-00705, 2015 TNT 5-12, 1/6/15 In the case of the Estate of Escher v. United States (USDC SD Ohio, Case No. 1:13-cv-00705, 2015 TNT 5-12) the issue involved whether a taxpayer should be found to have reasonable cause for the late filing of a tax return if the client s attorney misled the estate into believing the attorney had filed an extension for filing the return. The numbers in question are not small the estate had been hit with penalties and interest of $1,198, due to the late filing of the estate tax return. When Virginia Escher died her estate was worth over $12 million. Her cousin was appointed executor of the estate. Her cousin had never previously served as an executor, did not own any stock (Virginia s estate consisted principally of stock in UPS) and had never actually been in an attorney s office. She therefore decided to select Virginia s attorney to assist her due to her lack of experience in financial and probate matters. The attorney appeared more than qualified to handle the matter. She had over 50 years of experience in estate planning and had handled Virginia s planning. However she was privately battling brain cancer, a fact she did not disclose to the executor. Very likely due to issues related to that illness, the quality of the attorney s representation of the estate was well below the quality she had previously evidenced in her practice. 8

9 The attorney indicated to the executor that she had filed for an extension of time to file the estate tax return though, in fact, no extension had been filed. The opinion notes that it s not clear whether she intentionally misled the estate on this issue or not, but eventually the attorney voluntarily relinquished her law licensed following malpractice claims. As well, she has since been incompetent and is subject to a guardianship over her person and estate. The attorney had informed the executor that the estate tax return was due on September 30, She also informed the executor that the estate would owe approximately $6 million in estate tax. In order to pay the tax the estate would need to sell UPS stock, the asset that made up the bulk of the estate. The executor testified that she was aware that the filing deadline was important and that negative consequences would take place if the deadline was missed. Prior to the September 30 date the executor had received multiple notices from the probate court warning that counsel for the estate was failing to perform her duties and the estate had missed various deadlines. When she asked the attorney about the missed estate tax return filing deadline, the attorney assured the executor that an extension had been filed and that the attorney was handling the matters related to the estate. The executor accepted this statement, though she never asked to see the extension in question. However, notices continued to come from the probate court about missed deadlines. As well another family that had hired this attorney to handle an estate contacted the executor to warn her that they were seeking to have this attorney removed from handling their estate because she was incompetent. The attorney again assured the executor that all was going well and there were no issues. However, now the executor began to get notices from the state warning that the estate s state tax return had not been filed and was late, and alerted her that the state had not received any responses in letters to the attorney for the estate regarding this matter. The letter also informed her that additional amounts might be due because of the tardiness of the filing. As well, she received additional warnings from the other family regarding the attorney s lack of competence. Eventually she did consult with another attorney to consider if the estate s counsel s performance was a problem. This attorney advised her that she needed to hire an attorney other than the one she had retained to handle the estate. However, she still did not terminate the services of the attorney. Finally she received another letter from the state regarding the delinquent filings. At this point she contacted UPS and discovered that, despite having given the attorney documents many months earlier to arrange for a sale of the UPS stock (a sale that had to take place in order to pay the tax), UPS had never received a request to sell the stock. A few days later she terminated the services of the original attorney, hiring the attorney she had consulted (and who had advised her, it appears very correctly, to terminate the original attorney) to handle estate matters. Within a month the UPS stock was sold and on January 26, 2011 the estate filed its now very delinquent estate tax return. The estate now sought relief from the penalties imposed due to the late filing, arguing that the failure to file met the requirements for relief found at IRC 6651(a)(1). Those requirements are to show that the failure was: Due to reasonable cause and Was not due to willful neglect. Unfortunately, the court found that the estate could not meet either criteria. Generally the requirement to timely file a tax return cannot be delegated. As the court noted: Treasury Regulations require the estate to demonstrate that it exercised ordinary business care and prudence but nevertheless was unable to file the return within the prescribed time. Boyle, 469 U.S. at 246 (quoting 26 C.F.R (c)(1)). In Boyle, the Supreme Court held that [t]he failure to make a 9

10 timely filing of a tax return is not excused by the taxpayer s reliance on an agent, and such reliance is not reasonable cause for a late filing under Section 6651(a)(1). 469 U.S. at 248. In Boyle, the Supreme Court recognized a distinction between a taxpayer who has relied on the erroneous advice of counsel concerning a question of law, and a taxpayer who has retained an attorney to attend to an unambiguous, precisely defined duty to file a return by a certain time. Id. at 250. Although a taxpayer may reasonably rely on advice received from an attorney on a matter of tax law... one does not have to be a tax expert to know that tax returns have fixed filing dates and that taxes must be paid when they are due. Id. at 251. The opinion concludes: Accordingly, even though Plaintiff hired counsel to handle the estate, reliance on counsel cannot constitute reasonable cause for the late filing and payment of taxes. Even if Backsman s [the attorney] medical condition led her to malpractice in the course of representing the Estate, this did not render Mrs. Specht [the executor] disabled. Rather, to put it simply, the executor had a duty to confirm that filing deadlines had been met rather than simply accepting the word of her attorney. The court also found that there was evidence of willful neglect. The court notes that mere carelessness is enough to deny relief under this standard. And, unfortunately, there are plenty of items that came to the executor s attention that suggested there might be major problems with the adviser she had hired. As the opinion summarized: Mrs. Specht was aware that the Estate s federal tax return needed to be filed and paid nine months after Ms. Escher s death on September 30, 2009; that the tax liability was approximately $6,000,000; and that the Estate would need to sell its UPS stock to cover the tax liability. Mrs. Specht further understood that the September 30, 2009 deadline was important, and that missing the deadline would result in consequences. In the months prior to the estate tax deadline, Mrs. Specht received at least four notices from the probate court informing her that the estate was missing probate deadlines. After the deadline, Mrs. Specht received at least two additional noticed from the probate court warning that Backsman had failed to file a first accounting of the Estate s assets; numerous calls from the Rotterman family informing Specht that Backsman was incompetent; two letters from the Ohio Department of Taxation informing Specht that the state tax return was delinquent; and a warning from another attorney -- whom she eventually hired to replace Backsman -- informing her that she needed to hire another attorney. The court did close by noting that the result certainly seems harsh and unfair. But as the opinion notes: Serving as the executor of a probate estate is clearly not an easy task, which is why Mrs. Specht trusted an attorney to guide her through the process. While this Court finds it difficult to hold that Plaintiffs are ultimately responsible for Ms. Backsman s malpractice, that is what binding precedent requires. Notably, in light of Ms. Backman s malpractice, the State of Ohio refunded the late filing and payment penalties for Ohio estate taxes without the Estate filing a refund suit. (Doc. 16, Ex. 2 at 14). It is truly unfortunate that the United States did not follow the State of Ohio s lead. 10