Peter Knappe v. United States
2013 U.S. App. LEXIS 6809
9th Cir.2013Background
- Knappe, executor of the Pattee estate, relied on accountant Burns to file Form 706 and obtain extensions.
- Burns advised that an extension could apply to both filing and payment deadlines; Burns prepared Form 4768.
- Extensions: six-month automatic filing extension; extra time only for certain foreigners; payment extensions discretionary up to 12 months.
- Burns erroneously believed a 12-month extension was available and did not properly obtain or verify the extension; IRS approved a six-month filing extension and a discretionary payment extension.
- Knappe filed the estate tax return in May 2007 based on Burns’s advice that the filing deadline had been extended to August 30, 2007; penalties were assessed for late filing and later adjusted by the IRS.
- District court ruled that reasonable cause to excuse the penalty must be shown, and held that Knappe’s reliance on Burns did not establish reasonable cause; the Ninth Circuit affirmed, holding that reliance on nonsubstantive deadline information from an advisor cannot qualify as reasonable cause.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether reliance on advisor’s deadlines constitutes reasonable cause | Knappe argues Burns’s erroneous deadline advice was reasonable cause | The deadline is nondelegable and the reliance on nonsubstantive advice isn’t reasonable | No; reliance on nonsubstantive deadline advice cannot constitute reasonable cause |
| Whether the question is one of fact or law for summary judgment | Disputes exist about knowledge of the deadline and advice | The issue is legal: whether the elements of reasonable cause are present | Question is legal; court can decide on summary judgment |
| Whether the filing deadline issue is substantive or nonsubstantive tax law | La Meres-like argument that extension availability is a substantive matter | Deadline determination is nonsubstantive and governed by unambiguous rules | Nonsubstantive; depends on whether executor relied on misinterpretation of extensions, not on substantive tax positions |
| Role of executor’s nondelegable duties vs agent reliance | Knappe’s duty may be fulfilled by relying on Burns | Executor bears risk for deadline determinations and must verify extensions | Executor nondelegable duties preclude reasonable cause from erroneous deadline advice |
Key Cases Cited
- United States v. Boyle, 469 U.S. 241 (Supreme Court 1985) (reliance on agent’s advice not sufficient for nonsubstantive deadlines; burden on executor to file timely)
- Baccei v. United States, 632 F.3d 1140 (9th Cir. 2011) (distinguishes substantive vs nonsubstantive tax advice; penalties not excused for agent missteps on filing)
- Estate of La Meres v. Commissioner, 98 T.C. 294 (Tax Court 1992) (second six-month extension not presumed; substantive question about availability of extensions)
- United States v. Kroll, 547 F.2d 393 (7th Cir. 1977) (taxpayer may rely on expert advice for substantive tax questions; otherwise nondelegable duties prevail)