United States District Court, D. New Jersey
ESTATE OF AGNES R. SKEBA, Plaintiff,
UNITED STATES OF AMERICA, Defendant.
SUPERSEDING MEMORANDUM AND ORDER
G. SHERIDAN, U.S.D.J.
matter comes before the Court on a motion for reconsideration
(ECF No. 22) by the Defendant United States of America
("Government" or "Defendant"). In short,
the government asserts that the de novo standard of
review is appropriate for assessing the issue of whether
Plaintiff Estate of Agnes R. Skeba ("Estate" or
"Plaintiff) demonstrated reasonable cause and not
willful neglect in failing to timely file its estate tax
return; whereas the Court's original memorandum used the
arbitrary and capricious standard (see Memorandum at
13, ECF No. 21). By this order, the Court vacates its prior
memorandum (ECF No. 21) and files this superseding memorandum
in its stead.
this matter came before the Court on cross-motions for
summary judgment brought by Plaintiff (ECF No. 12) and by
Defendant (ECF No. 13). More specifically, Plaintiff seeks to
set aside $450, 959 in penalties assessed by the Internal
Revenue Service ("IRS") for the alleged late filing
of an estate tax return.
10, 2013, Agnes R. Skeba ("Skeba" or
"Decedent") died. (Plaintiffs Statement of
Undisputed Facts in Support of Motion for Summary Judgment
("Plaintiffs SUF") ¶ 1, ECF No. 12-2). Per the
IRS Code, the initial date for the Estate to file a federal
estate tax return was nine months after said death (March 10,
2014). (Id. ¶ 2).
about March 6, 2014, Plaintiff, through its counsel, George
White, Esq., filed an IRS form entitled "Application for
Extension of Time to File a Return and/or Pay U.S. Estate . .
. Taxes" (IRS Form 4768) with a partial payment of the
estate tax in the amount of $725, 000, along with a cover
letter explaining the reasons for the application.
(Id. ¶ 3).
White's letter to the IRS stated that he was paying all
of the liquid assets ($1.475 million) of the Estate to the
State of New Jersey, Commonwealth of Pennsylvania, and the
United States in payment of state and federal estate taxes.
Mr. White furthered that the Estate was negotiating a
mortgage on a commercial property to satisfy the remainder
the estate tax it owed to the federal government; but this
would require additional time. More specifically, Mr.
White's letter states:
Our office is representing Stanley L. Skeba, Jr. as the
Executor of the Estate of Agnes Skeba. Enclosed herewith is a
completed "Form 4768 - Application for Extension of Time
to File a Return and/or Pay U.S. Estate Taxes" along
with estimated payment in the amount of $725, 000 made
payable to "The United States Treasury" for the
above referenced Estate Tax.
Additionally, we are requesting a six (6) month extension of
time to make full payment of the amount due. Despite the best
efforts of this office and the Executor, the Estate had
limited liquid assets at the time of the decedent's
death. Accordingly, we have been working to secure a mortgage
on a substantial commercial property owned by the Estate in
order to make timely payment of the balance of the Estate Tax
anticipated to be due.
Currently, we have liquid assets in the amount of $1, 475
million and the estimated value of the total estate is $14.7
million. Accordingly, we have submitted payments in the
amount of $575, 000 to the State of New Jersey, Division of
Revenue, for State estate taxes payable and in the amount of
$250, 000 to the Pennsylvania Department of Revenue for State
inheritance taxes payable. We are hereby submitting the
balance of available funds to you, in the amount of $725,
000, as partial payment of the expected U.S. Estate Taxes for
We are in the process of securing a mortgage, which was
supposed to close prior to the taxes being due, in the amount
of $3.5 million that would have permitted us to make full
payment of the taxes timely. Due to circumstances previously
unknown and unavoidable by the Executor, the lender has not
been able to comply with the closing deadline of March 7,
2014. It is anticipated that the lender will be clear to
close within fourteen (14) days and then we will remit the
balance of the estimated U.S. Estate Taxes payable.
Additionally, there has been delays in securing all of the
necessary valuations and appraisals due to administrative
delays caused by contested estate litigation currently
pending in Middlesex County, New Jersey.
(Certification of Joseph M. Hayes, Esquire in Support of
Plaintiff s Motion for Summary Judgment ("Hayes Cert.),
Ex. C, ECF No. 12-2).
time, the Estate was valued at approximately $13.1 million of
which $10.2 million consisted of real estate (much of it was
farmland) and farming machinery. (Plaintiffs SUF ¶ 6).
As a result, there were delays in securing all of the
necessary valuations and appraisals, and there was ongoing
contested estate litigation pending in Middlesex County, New
Jersey. (Id. ¶. 7).
anticipated within the letter, Plaintiff refinanced its real
estate, and made a second payment to the IRS in the amount of
$2, 745, 000 around March 18, 2014, only eight days after the
original due date for payment. (Id. ¶ 11). This
amount plus the prior payment ($725, 000) totaled $3, 470,
000 in estate taxes having been paid to the IRS.
about June 25, 2014, D. Owens of the IRS approved Plaintiffs
application to extend the time to file the estate tax return
from March 10, 2014 until September 10, 2014. (Hayes Cert.,
Ex. E). Mr. Owens' letter noted that any extension of
time was subject to the caveat that the extension was
"granted on a year by year basis only."
(Id.). The letter reads, in pertinent part:
Any extension will be granted on a year by year basis only.
In granting an extension of time to pay the estate tax or an
installment for a previously approved extension, the Internal
Revenue can require a performance bond, under Section 6161
(d) and 6165 of the Internal Revenue Code with a face value
of up to double the amount being deferred.
In the event the Internal Revenue Service denies your
extension request, your payment of tax is due upon receipt of
the denied extension.
about July 8, 2014, the extension of time to pay the estate
tax was granted by Gloria Olsen of the IRS, until September
10, 2014. (Hayes Cert., Ex. F). Ms. Olsen's approval
stated further conditions, which may be imposed for future
extensions. Ms. Olsen wrote, in part:
The requirement to furnish a bond under IRC § 6165 is
being waived for this extension to pay request but may be a
requirement for future requests. Please note that the
granting of an extension of time for payment does not relieve
the estate from liability for the payment of interest during
the period of extension. Any future request for extension of
time to pay the liability must be applied for on or before
the date of the expiration of the previous extension.
Id. Neither the Olsen letter nor the Owens letter
acknowledged the estimated taxes that had been paid on or
about March 18, 2014, but both letters advised the Estate
that any further extension must be applied for prior to the
last day of the previous extension.
around June 30, 2015, Plaintiff filed its federal estate tax
return. It was prepared by David Lauer and Virginia Keenan,
Certified Public Accountants ("CPAs"), who were
engaged by the Estate and Mr. White to prepare the return.
The return reported the net estate tax as $2, 528, 838, and
the prior estimated payment of $3, 470, 000. Subtracting the
net estate tax from the estimated payment showed an
overpayment of $941, 162. (See Hayes Cert., Ex. D).
August 3, 2015, the IRS responded to Plaintiffs return.
(Plaintiffs SUF ¶ 14). It showed an "Overpayment on
account before adjustment" of $941, 162, and then it
indicated there was a penalty assessed due to the
Estate's failure to file in the amount of $450, 959.50
and a net "Overpayment" of $488, 719.34, which was
refunded to Plaintiff. (Id.). The IRS Notice stated
that the "failure to file" penalty was 25% of the
"unpaid amount" of $1, 803, 838. (See
Hayes Cert., Ex. I). The IRS calculated the amount due on
March 10, 2014 was $2, 528, 838 minus $750, 000 paid,
equaling an amount due of $1, 803, 838. The IRS then imposed
a 25% penalty on that amount. (Id.).
August 17, 2015, Mr. White, on behalf of Plaintiff and in
response to the IRS's action, sent a letter to the IRS
requesting abatement of penalties in the amount of $450,
959.50. (Hayes Cert., Ex. J).
letter, Mr. White set forth various reasons for the delay in
filing Plaintiffs federal estate tax return. This includes a
reference to a conversation that White had with
"representatives of the IRS" in which he states
that "we were informed that so long as the payment was
made in full, then the filing of the return beyond the
extension deadline was permissible and would not subject the
estate to any penalty." (Id. at 2). Further,
Mr. White's letter set forth additional information
concerning why Plaintiff did not file a timely estate tax
Beyond September 10, 2014, the Estate continued to have
delays in filing due to the pending and anticipated
completion of the litigation over the validity of the
decedent's Will, which would impact the Estate's
ability to complete the filing and the executor's
capacity to proceed. Initially, it, was anticipated that the
trial of this matter would be heard before Judge Frank M.
Ciuffani in the Superior Court of New Jersey in Middlesex
County, Chancery Division-Probate Part in July of 2014. Due
to health concerns on behalf of the Plaintiff, Joseph M.
Skeba, the Judge delayed these proceedings multiple times
through the end of 2014, each time giving us a new
anticipation of the completion of the trial to permit the
estate tax return to be filed. Upon the Plaintiffs improved
health, the Judge finally scheduled a trial for July 7, 2015,
which was expected to allow our completion in filing the
Accordingly, this litigation, which was causing us reason to
delay in the filing, gave rise to the estate's inability
to file the return.
Finally, in May of 2015 we were notified of the Estate's
litigation attorney, Thomas Walsh of the law firm of Hoagland
Longo Moran Dunst & Doukas, LLP, that he was diagnosed
with cancer that would possibly cause him to delay this
matter from proceeding as scheduled. In early June, we were
notified by Mr. Walsh's office that his prognosis had
worsened and he would be prevented from further handling the
litigation of this matter, so new counsel within his firm
would be assisting in carrying this matter through trial. Due
to the change in counsel, it was deemed that the anticipated
trial was no longer predictable in scheduling, so the Estate
chose to file the return as it stood at such time.
(Id. at 2-3).
around November 5, 2015, the IRS responded to Mr. White's
letter in which it stated that the reasons within Mr.
White's letter do not "establish reasonable cause or
show due diligence." (Hayes Cert., Ex. K).
response to this letter, on December 8, 2015, Mark R. Aumack,
Mr. Skeba's personal accountant, filed an appeal of the
IRS determination. Plaintiff never received a reply to this
letter. (Hayes Cert., Ex. L). Mr. Aumack's letter of
appeal reiterated the same points as Mr. White's August
17, 2015 letter, and it also highlighted one additional
reason that was not fully articulated in Mr. White's
I do not believe the IRS had knowledge of the extension in
place at the time the penalty was assessed, nor did they have
a record of the additional payment of $2, 745, 000. The IRS
listed the unpaid tax as $1, 803, 838 and charged the maximum
25% to arrive at the penalty of $450, 959.50. The estate not
only paid the entire tax the estate owed by the due date to
pay but also had an overpayment. Section 6651 (b) bars a
penalty for late filing when estimated taxes are paid.
Aumack sent another letter to the same address on January 12,
2016. (Hayes Cert., Ex. M). To date, IRS Appeals has not
responded to either letter.
Mr. White testified that he had a conversation with a
representative of the IRS about his concerns with Plaintiffs
estate litigation and asked the IRS representative about the
implications of waiting until after the litigation was
concluded to file the federal estate tax return. The IRS
representative with whom he spoke reaffirmed his
understanding that because full payment had been made before
the date prescribed for payment, there would be no
implication for filing late. (Hayes Cert., Ex. N at
receipt of the August 3, 2015 letter, Mr. White called the
contact person who indicated same and was advised that there
was an "error, and that the assessment was
incorrect." (Id. at 82:5-83:5).
deposition, Ms. Keenan stated that she had a conversation
with a representative of the IRS similar to the one Mr. White
had. In fact, she called the IRS at various times to discuss
third party valuations and the implications of a late filing,
and IRS representatives advised if "you're paid in,
you're fine." (Hayes Cert., Ex. O at 19:3-13).
Further, Ms. Keenan explained that she understood that as
long as the estate tax was paid into the taxing authorities,
a late penalty for failure to timely file based on a
reasonable cause would not be assessed. (Id. at
discovery, the IRS developed some information about the
seemingly lackadaisical approach taken by Plaintiff to file
the return. Mr. Skeba, as executor, had little knowledge of
the extended deadline date (Statement of Undisputed Facts
("Def. SUF") ¶ 14, ECF No. 13-3) and Mr. Skeba
never questioned Mr. White as to when the estate tax return
would be filed (Id. ¶ 15). Moreover, Mr. White
had hired another accounting firm to prepare the estate tax
return, but Mr. Skeba never communicated with that firm, and
Mr. White failed to provide pertinent information requested
by that firm which prevented it from filing the return on a
more timely basis. (A/. ¶¶ 17-20).
judgment is appropriate under Fed.R.Civ.P. 56(c) when the
moving party demonstrates that there is no genuine issue of
material fact and the evidence establishes the moving
party's entitlement to judgment as a matter of law.
Celotex Corp. V. Catrett, 477 U.S. 317, 322-23
(1986). A factual dispute is genuine if a reasonable jury
could return a verdict for the non-movant, and it is material
if, under the substantive law, it would affect the outcome of
the suit. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986). In considering a motion for summary
judgment, a district court may not make credibility
determinations or engage in any weighing of the evidence;
instead, the non-moving party's evidence "is to be
believed and all justifiable inferences are to be drawn in
his favor." Marino v. Indus. Crating Co., 358
F.3d 241, 247 (3d Cir. 2004) (quoting Anderson, 477
U.S. at 255).
the moving party has satisfied its initial burden, the party
opposing the motion must establish that a genuine issue as to
a material fact exists. Jersey Cent. Power & Light
Co. v. Lacey Twp., 772 F.2d 1103, 1109 (3d Cir. 1985).
The party opposing the motion for summary judgment cannot
rest on mere allegations and instead must present actual
evidence that creates a genuine issue as to a material fact
for trial. Anderson, 477 U.S. at 248; Siegel
Transfer, Inc. v. Carrier Express, Inc., 54 F.3d 1125,
1130-3 1 (3d Cir. 1995). "[Unsupported allegations . . .
and pleadings are insufficient to repel summary
judgment." Schoch v. First Fid. Bancorp., 912
F.2d 654, 657 (3d Cir. 1990); see also Fed. R. Civ.
P. 56(e) (requiring nonmoving party to "set forth
specific facts showing that there is a genuine issue for
only disputes over facts that might affect the outcome of the
lawsuit under governing law will preclude the entry of
summary judgment. Anderson, 477 U.S. at 247-48. If a
court determines, "after drawing all inferences in favor
of [the non-moving party], and making all credibility
determinations in his favor . .. that no reasonable jury
could find for him, summary judgment is appropriate."
Alevras v. Tacopina, 226 Fed.Appx. 222, 227 (3d Cir.
long-established principle in interpreting tax statutes is
that they are narrowly construed. Gould v. Gould,
245 U.S. 151, 153 (1917). Gould reasons: "[I]t
is the established rule not to extend their [tax] provisions,
by implication, beyond the clear import of the language used,
or to enlarge their operations so as to embrace matters not
specifically pointed out." Id. at 153. In the
event of ambiguity, the Court's interpretation should be
"construed most strongly against the government, and in
favor of the citizen." Id. In addition, when
interpreting tax statutes that impose penalties, precedence
requires that "'penal statutes are to be construed
strictly' . . . and that [a taxpayer] 'is not to be
subjected to a penalty unless the words of the statute
plainly impose it." Comm'r v. Acker, 361
U.S. 87, 91(1959) (citations omitted). The Gould
principle has been subject to some criticism, however.
See Fedders Fin. Corp. v. Director, Division of
Taxation, 96 N.J. 376, 384-85 (1984). Due to same, the
law has evolved in estate tax matters to acknowledge that the
estate bears the burden in proving that it has exercised
ordinary business care and prudence in the event it filed a
late return. United States v. Boyle, 469 U.S. 241,
246 (1985) (quoting 26 CFR § 301.6651(c)(1) (1984)).
Boyle, Chief Justice Burger addressed "whether
a taxpayer's reliance on an attorney to prepare and file
a tax return constitutes 'reasonable cause' under
§ 6651(a)(1) of the Internal Revenue Code, so as to
defeat a statutory penalty incurred because of a late
filing." Id. at 242. According to 26 CFR §
3 01.6651-1 (c)(1), a taxpayer filing a late return must show
that he or she exercised ordinary business care and prudence
and was nevertheless unable to file the return within the
prescribed time. Id. at 243. Chief Justice Burger
reasoned there was an administrative need for strict filing
requirements. He wrote:
The time has come for a rule with as 'bright' a line
as can be drawn consistent with the statute and implementing
regulations. Deadlines are inherently arbitrary; fixed dates,
however, are often essential to accomplish necessary results.
The Government has millions of taxpayers to monitor, and our
system of self-assessment in the initial calculation of a tax
simply cannot work on any basis other than one of strict
filing standards. Any less rigid standard would risk
encouraging a lax attitude toward filing dates. Prompt
payment of taxes is imperative to the Government, which
should not have to assume the burden of unnecessary ad
Id. at 248-49. Accordingly, Chief Justice Burger
differentiated between a taxpayer's reliance on advice
from an attorney or accountant as reasonable care, but he
found that "a taxpayer does not have to be a tax expert
to know that tax returns having filing dates and taxes must
be paid when due." Id. at 251. As such, simple
reliance on ...