Court enforces penalty for late filing of estate tax return despite the fact that estimated taxes had been paid.

In Liftin v. United States the U.S. Court of Appeals for the Federal Circuit held that penalties for filing an estate tax return late are mandatory – even if the estimated estate taxes were paid.

Morton Liftin passed away in March of 2003 survived by his wife, a citizen of Bolivia, and his adult son, John. John was named executor of his dad’s estate.

The estate tax return was due by December of 2003 – nine months after Morton’s death. However, John, who was an attorney, and the attorney he retained to assist him with his father’s estate, were uncertain about the estate tax due because his dad’s wife was not a U.S. citizen and because of litigation involving a pre-nuptial agreement. John requested an extension of the time for filing the estate tax return – which the IRS granted. He also paid estimated estate taxes due to the IRS.

Neither the citizenship of John’s step-mom or the litigation involving the pre-nuptial agreement were resolved at the time the extension for filing the estate tax return arrived. As noted, John paid estimated taxes to the IRS but did not file the estate tax return because of the unresolved issues surrounding his father’s estate. Once the citizenship of John’s step-mom and litigation surrounding the pre-nuptial agreement was resolved, John filed the estate tax return.

In the return, the estate claimed a refund of $198,727.50 based on its earlier overpayment of estimated estate taxes. The IRS did not disagree with the estate’s calculation of the estate tax or that it had overpaid estimated taxes. However, it assessed a late-filing penalty of $169,643.06.

In the ensuing litigation, the court held that the statutory penalties for filing an estate tax return late are mandatory – even if the estate paid the estate taxes when due. Yes, you read that correctly, even if the estate pays the taxes when due (or in this case even if the estate OVERPAID the taxes when they were due), penalties are still mandatory if the estate tax return was not filed on time.

When a loved one passes, the estate tax return is due within nine months of the date of death. If it is not filed on time, mandatory penalties will be assessed.

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Chuck Roulet
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Nationally Recognized Estate Planning Attorney, Author, and Speaker