Martha in the absence of an exercise, the facts presented here would have made a strong case for asking a state court to rule that a general residuary clause should be read as including an exercise of the power, as was done in Bank of New York v. Black, supra.
The same result is reached by the application of federal law. At one time, the additional tax on Grace's estate could have been avoided without reliance on the doctrine of probable intent. Under Helvering v. Grinnell, 294 U.S. 153, 79 L. Ed. 825, 55 S. Ct. 354 (1935), Grace's exercise of the power might have been regarded as a mere echoing of the gift over under the Lummis will, and hence not an actual exercise of the power. And, see Rogers v. Helvering, 320 U.S. 410, 64 S. Ct. 172, 88 L. Ed. 759 (1943), distinguishing Grinnell on the ground that the exercise of the power there did not exactly echo the existing gift over.
Since then, by virtue of Regs. § 20.2041-1(d), the exercise of the power controls, even though it echoes the gift over, and even though the beneficiaries renounce the gift under the exercise and elect to take by the gift over, " regardless of local law ". Because of this, even if there were some way for this case to have reached the Supreme Court of New Jersey, and even if it had applied the doctrine of probable intent to delete Grace's exercise of the power, that decision would be no more than an application of local law and as such the federal court would be obliged to disregard it. And see, Bank of New York v. U.S., 526 F.2d 1012 (CA-3, 1975).
On the main issue, plaintiffs' motion for summary judgment is accordingly denied, and defendant's cross-motion is granted.
The second issue, namely the assessment of the late filing penalty is also decided in favor of defendant. The facts relied on show that plaintiffs knew a return had to be filed but claim that they relied on the attorney whom they hired for the sole purpose of preparing federal estate tax and New Jersey inheritance tax returns to do so within the time required. There is no question that the return was late.
The court is satisfied that the issue is controlled by U.S. v. Kroll, 547 F.2d 393 (CA-7, 1971), holding that the duty to file a return when due is personal and nondelegable in cases where there is no question that a return must be filed. That ruling is not seen as inconsistent with Hatfield v. Comm'r, 162 F.2d 628 (CA-3, 1947); Preston Lea Spruance, 60 T.C. 141 (1973), aff'd 505 F.2d 731 (CA-3, 1974).
To escape the late filing penalty under 26 USC § 6651(a), it must appear that the failure to file when due is (1) due to reasonable cause and (2) not due to wilful neglect.
Grace died in early 1973, and nearly 7 weeks elapsed before her 1971 will was presented for probate. Since New Jersey has a waiting period of only 10 days after death, N.J.S. 3A:3-19, an explanation for the long delay is warranted but none is offered.
At argument, in response to a question from the bench, it was agreed that the will was presented for probate by the lawyer who prepared the returns, not by the one who drew the will. Plaintiffs have offered the affidavit of the draftsman of the will, but not that of the lawyer who prepared the returns. Absent any showing of his unavailability to support the claim of "reasonable cause" for delay and of absence of wilful neglect, it is reasonable to draw the inference that his testimony would not support the claim.
Whatever the extent of the burden may be, and assuming that a bare preponderance would suffice, the burden is on plaintiffs to show both the elements required by 26 USC § 6651(a). There are many reasons that might have caused the delay, aside from the professed ignorance of plaintiffs and the veiled implication of a lack of diligence of the attorney. He may have been delayed in preparation of the return because plaintiffs were slow in furnishing information he needed, to take one example. This is not improbable because the stipulated record shows that the return did not include some real estate that Grace owned. And, while neither executor may be familiar with estate tax laws, it was established at argument that James operates the family printing business. As a businessman he must be aware that tax returns have deadlines for filing. Yet nowhere is it shown that he asked when the return was due, or that the lawyer gave him the wrong date. In addition, the proofs submitted do not address the aspect of absence of wilful neglect.
In view of this ruling, there is no need to deal with defendant's independent assertion that the claims for refund themselves are barred, in any event, for failure to set forth in detail each ground on which the refund is claimed, 26 USC § 7422(a); Treas. Reg. (1954 Code) 26 C.F.R. § 301.6402-2.
Submit judgment accordingly.