Peter Knappe v. United StatesPeter Knappe v. United States
Finally, Arrocha complains that the “officers did not allow Mr. Arrocha to contact anyone and therefore violated the Liberty tow policy.” But this is not a Fourth Amendment issue. “Nothing in the Fourth Amendment requires a police department to allow an arrested person to arrange for another person to pick up his car to avoid impoundment and inventory.” United States v. Agofsky, 20 F.3d 866, 873 (8th Cir.) (citing Bertine, 479 U.S. at 372, 107 S.Ct. 738), cert. denied, 513 U.S. 909, 949, 115 S.Ct. 280, 363, 130 L.Ed.2d 196, 316 (1994). “The central question in evaluating the propriety of an inventory search is whether, in the totality of the circumstances, the search was reasonable.” Frasher, 632 F.3d at 454. Here, we agree with the district court that Officer King‘s decision to tow the SUV was a reasonable exercise of discretion that was sufficiently “fettered” by standardized police procedures.2
In a supplemental pro se brief, Arrocha raised additional issues requiring only brief review. First, he complains that his arrest was based on a “non-extraditable Municipal warrant” and therefore invalid. This issue was not raised in the district court and is based on an unauthenticated document that is not part of the record on appeal. Second, he asserts that Officer Mason seized the SUV keys during an unlawful patdown. This assertion is contrary to the district court‘s finding that Arrocha told Mason the keys were in his pocket and asked her to roll up the SUV windows. Third, he argues there was no consent to search. However, the inventory search was not upheld based on consent. Finally, he argues the police failed to give him Miranda warnings following his custodial arrest, but he fails to identify a post-arrest statement material to the inventory search, which is the only issue on appeal.
For these reasons, we affirm the judgment of the district court.
Argued and Submitted May 9, 2012.
Janet L. Everson (argued), Jason Galek, Arthur V. Pearson, and Vincent O‘Gara, Murphy Pearson Bradley & Feeney, San Francisco, CA, for Plaintiff-Appellant.
Before: KIM McLANE WARDLAW, RICHARD A. PAEZ, and JOHNNIE B. RAWLINSON, Circuit Judges.
OPINION
PAEZ, Circuit Judge:
When can you trust your accountant‘s advice about when your taxes are due? That is the question we face today. Appellant Peter Knappe, acting as the executor of an estate, asked his accountant to apply for an extension of the deadline to file the estate-tax return from the Internal Revenue Service (“IRS“). The accountant told Knappe that the deadline had been extended one year, when in fact it had been extended only six months. Acting on the bad advice, Knappe filed the tax return several months late, and the IRS assessed significant penalties against the estate. Knappe initiated this action in the Central District of California, seeking a refund of the penalty. The district court granted summary judgment to the Government on the ground that Knappe had not shown “reasonable cause” to excuse the penalty, as that term is used in
I. Background
Ingborg Pattee died on November 30, 2005, leaving behind a substantial estate. Her will named as the executor of the estate Peter Knappe, a longtime friend
At some point before that deadline, Knappe realized he did not have time to obtain real estate appraisals that he needed to prepare the return accurately. Knappe sought Burns‘s advice about requesting an extension of the filing deadline from the IRS. Burns told Knappe that he could obtain an extension of both the filing and payment deadlines, and that the same extension was available for both deadlines. Knappe authorized Burns to prepare and file IRS Form 4768, an “Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes.”
Form 4768 gives taxpayers three options: they can seek an extension of the Form 706 filing deadline, seek an extension of the time to pay any estate tax due, or both. The instructions that accompany Form 4768 explain the difference between the two categories of extensions. The instructions for “Part II, Extension of Time to File Form 706” state that an “executor may apply for an automatic 6-month extension of time to file Form 706.” An executor who is “out of the country” may apply for an additional extension in excess of the automatic six months; the instructions warn, however, that “[y]ou cannot combine an application for an automatic extension and an additional extension on the same Form 4768.” Finally, the instructions explain that an executor who failed timely to apply for the automatic six-month extension may apply for an “extension for cause.” “Unless the executor is out of the country,” however, extensions for cause are limited to “6 months from the original due date of the Form 706.”
The instructions for “Part III, Extension of Time to Pay” explain that such an extension “may not exceed twelve months” and is granted at the discretion of the IRS. In contrast to extensions of the filing deadline, the IRS may grant up to ten consecutive extensions of the payment deadline—parceled out one year at a time—provided the taxpayer can establish “why it is impossible or impractical for the executor to pay the full amount of the estate tax by the estate tax return due date.”
The two types of extensions are thus subject to two different sets of rules. Extensions of the filing deadline are granted automatically for six months, and only foreign executors can seek additional time. Extensions of the payment deadline, on the other hand, are purely discretionary, and the IRS may grant multiple extensions, each as long as a year.
Burns filed Form 4768 on August 30, 2006, applying for the six-month automatic filing extension and a one-year discretionary payment extension.
After filing the completed Form 4768 with the IRS, Burns sent a copy to Knappe. Knappe gave the form a cursory review, but did not examine it in detail. Knappe testified that there was no reason he could not have scrutinized the form, but that he mostly noticed the extension date Burns had requested, “8/30/2007,” and Burns‘s estimate that the taxes owed would total $1.1 million.
At the time Burns prepared Form 4768, he mistakenly believed that it was possible to request a twelve-month extension of the filing deadline, even though he had read the instructions and reviewed the relevant statutes and Treasury regulations. Before Burns filed the form, he advised Knappe explicitly that he could obtain a twelve-month extension of both the filing and payment deadlines. Knappe testified that he believed that the extension application would extend both the filing and payment deadlines for one year—to August 30, 2007. Knappe‘s understanding of the deadlines rested entirely on Burns‘s representations; he made no independent effort to assay the rules. When the IRS approved the automatic six-month extension to the filing deadline and the discretionary one-year extension to the payment deadline, neither Burns nor Knappe realized their mistake.
Convinced that the filing deadline had been extended one year, Knappe elected to wait until May 2007 to file the return, in part to accommodate Burns‘s busy schedule during tax season. Burns and Knappe worked together to complete the return, and on May 18, 2007, Burns sent Knappe the completed Form 706. Burns also prepared a cover letter for Knappe to send to the IRS, which read, “Enclosed for filing is United States Estate Tax Return Form 706 for the above referenced decedent. The extended payment date/due date of this return is August 30, 2007 as shown on the IRS Form 4768 attached to this return.” Knappe filed the return and cover letter on behalf of the estate on May 29, 2007. He also enclosed a check for the balance of the estate tax. Knappe later testified that he could have filed the estate-tax return by February 28, 2007 if he had understood that Burns had only obtained a six-month extension.
Sometime in 2008, the IRS observed that Knappe had filed the estate-tax return after the February 28, 2007 deadline. The agency assessed a 20 percent late-filing penalty for a four-month delinquency, excluding interest, in the amount of $196,414.60.1 Knappe called Burns to ask why the IRS believed the estate-tax return was late. Burns reviewed the regulations and quickly realized he had made an error. Burns admitted that determining the correct deadline “was not an ambiguous question.”
Knappe requested an abatement of the penalty. The Internal Revenue Code excuses late-filing executors from penalties if the failure to file was “due to reasonable cause and not due to willful neglect.”
The Government moved for summary judgment. The district court granted the motion, holding that the existence of reasonable cause under
We have jurisdiction under
II. Analysis
A.
An estate-tax return, Form 706, must be filed within nine months of the decedent‘s death.
Extensions of the deadline to pay the estate tax operate differently. Treasury Department regulations specify that the IRS may grant an extension of time to pay estate taxes, at the written request of the executor, “for a reasonable period of time, not to exceed 12 months.”
An executor who fails to file a timely estate-tax return is subject to a penalty. See
To establish reasonable cause, a taxpayer must prove that he “exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time.”
Before we turn to that cardinal issue, we must first address Knappe‘s argument that the reasonableness of his actions is an issue of disputed fact that cannot be appropriately decided on summary judgment.
The Supreme Court has held that “[w]hether the elements that constitute ‘reasonable cause’ are present in a given situation is a question of fact, but what elements must be present to constitute ‘reasonable cause’ is a question of law.” United States v. Boyle, 469 U.S. 241, 249 n. 8, 105 S.Ct. 687, 83 L.Ed.2d 622 (1985). In this case, the parties do not seriously disagree about the material facts. Knappe insists that factual disputes remain regarding whether Knappe had knowledge of the correct filing deadline and whether Burns advised him about it. Viewing the evidence in the light most favorable to Knappe, however, we simply assume that he had no actual or constructive knowledge of the correct filing deadline and that his uncertainty was the product of Burns‘s bad advice. What remains is the unambiguously legal question of whether Knappe‘s actions satisfy the minimum elements of reasonable cause. See id.
C.
1.
Cases addressing reasonable cause for late filing of tax returns fall into two general categories. In the first category are cases involving taxpayers who delegate the task of filing a return to an expert agent, only to have the agent file the return late or not at all. The leading case in this category is Boyle, 469 U.S. 241, 105 S.Ct. 687. There, Boyle, the executor of his mother‘s estate, retained an attorney who advised him that an estate-tax return was due but did not mention when it was due.
The Supreme Court held that Boyle‘s reliance on his attorney to file the tax return timely was not reasonable cause for the delay. “Congress has placed the burden of prompt filing on the executor,” the Court explained, “not on some agent or employee of the executor.” Id. at 249. The Court described the taxpayer‘s “fixed and clear” duty as “an obligation to ascertain the statutory deadline and then to meet that deadline, except in a very narrow range of situations.” Id. at 249-50. Delegating the duty of filing to an agent was not within the “very narrow range of situations” in which failing to meet a statutory filing deadline would be excused, because “Congress has charged the executor with an unambiguous, precisely defined duty to file the return within nine months.” Id. at 250. That the executor‘s agent “was expected to attend to the matter does not relieve the principal of his duty to comply with the statute.”
Reliance by a lay person on a lawyer is of course common; but that reliance cannot function as a substitute for compliance with an unambiguous statute.... It requires no special training or effort to ascertain a deadline and make sure that it is met. The failure to make a 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 § 6651(a)(1) .
Id. at 251-52; see also Conklin Bros. of Santa Rosa, Inc. v. United States, 986 F.2d 315, 316-18 (9th Cir. 1993) (holding that reasonable cause did not excuse a corporation‘s late filing and payment of taxes when the company office manager failed to make timely filings and payments and falsified records to disguise her errors from company management).
In the second category are cases in which a taxpayer relies on an agent‘s erroneous advice that no return is due. Courts have consistently held that such reliance does constitute reasonable cause for delay. Even the Boyle court appeared expressly to endorse such a rule:
When an accountant or attorney advises a taxpayer on a matter of tax law, such as whether a liability exists, it is reasonable for the taxpayer to rely on that advice. Most taxpayers are not competent to discern error in the substantive advice of an accountant or attorney. To require the taxpayer to challenge the attorney, to seek a “second opinion,” or to try to monitor counsel on the provisions of the Code himself would nullify the very purpose of seeking the advice of a presumed expert in the first place. “Ordinary business care and prudence” do not demand such actions.
469 U.S. at 250-51 (citations omitted). Cases in this category stand for the principle that the question of whether a return is due is a matter of substantive tax law, and that a taxpayer acts with ordinary business care and prudence when he relies on an expert‘s answer to that question. See, e.g., United States v. Kroll, 547 F.2d 393, 396 (7th Cir. 1977) (holding that “when there is no question that a return must be filed, the taxpayer has a personal, nondelegable duty to file the tax return when due” but noting that “[w]hether or not the taxpayer is liable for taxes is a question of tax law which often only an expert can answer. The taxpayer not only can, but must, rely on the advice of either an accountant or a lawyer. This reliance is clearly an exercise of ordinary business care and prudence.“).
This case does not fall squarely into either category. Knappe neither delegated the task of filing the return to a neglectful agent nor received mistaken advice that no taxes were due. Rather, he personally filed the return after the actual deadline, but within the time that Burns erroneously had assured him was available.
In Boyle, the Supreme Court expressly declined to reach the question posed by this case:
Courts have differed over whether a taxpayer demonstrates “reasonable cause” when, in reliance on the advice of his accountant or attorney, the taxpayer files a return after the actual due date but within the time the adviser erroneously told him was available. We need not and do not address ourselves to this issue.
469 U.S. at 251 n. 9. Our sister circuits have reached contradictory conclusions. Compare, e.g., Estate of Kerber v. United States, 717 F.2d 454, 455-56 (8th Cir. 1983) (per curiam) (refusing to find reasonable cause where an executrix‘s attorney “correctly advised her that it would be necessary to file an estate tax return” but “erroneously believed that the return was due one year,” rather than nine months, “after the decedent‘s death“), with Estate of Bradley v. Comm‘r, 33 T.C.M. (CCH) 70, 72-73 (1974) (holding that it was “consistent with ordinary business care and prudence for [the executor] to consult a member of an accounting firm which regularly prepared tax returns for advice on the due date of the estate tax return and to rely on
This case is more like the first category than the second because of the Supreme Court‘s distinction between substantive and nonsubstantive tax advice, Boyle, 469 U.S. at 251-52, which we recently recognized in Baccei v. United States, 632 F.3d 1140, 1148-49 (9th Cir. 2011). Reading those cases closely, we conclude that the question of when the estate-tax return was due once an extension had been obtained was a nonsubstantive one. For that reason, Knappe did not exercise ordinary business care and prudence when he relied unquestioningly on Burns‘s advice about the extended deadline, and he unreasonably abdicated his duty to ascertain the filing deadline and comply with it.
2.
Given the vagaries of our famously labyrinthine tax laws, one might assume that hiring a tax expert is the quintessence of “ordinary business care and prudence.” On this view, a taxpayer who has solicited the services of a qualified professional and supplied him with the necessary information would be insulated from penalties stemming from the agent‘s mistakes. After all, one hires a tax expert precisely to avoid having to read even the most straightforward IRS prose.
Taxpayers, however, are not exempt from penalty liability for their agents’ mistakes in all cases. In Boyle, the Court drew a sharp distinction between substantive advice on tax law, on which executors may reasonably rely, and nonsubstantive advice, on which executors may not rely. See 469 U.S. at 251 (“When an accountant or attorney advises a taxpayer on a matter of tax law, such as whether a liability exists, it is reasonable for the taxpayer to rely on that advice. Most taxpayers are not competent to discern error in the substantive advice of an accountant or attorney.“) (second emphasis added). The Court also explained that determining the filing date of a tax return is a nonsubstantive matter: “[O]ne 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.... It requires no special training or effort to ascertain a deadline and make sure that it is met.” Id. at 251-52.
The obvious objection is that Boyle did not involve a request to extend the default deadline for filing the estate-tax return. It is a simple matter to determine when an estate-tax return is due—the instructions to Form 706 explain the nine-month deadline, under a large heading that reads, helpfully, “When To File.” It is harder to work through the rules governing extensions, which distinguish between extensions to the filing deadline and extensions to the payment deadline, as well as between domestic and foreign executors.
Our recent decision in Baccei forecloses this objection. That case involved an executor, Baccei, who retained a certified public accountant to prepare and file a federal estate tax return on behalf of the estate he was administering. 632 F.3d at 1143. The accountant represented to Baccei that 3
Seeking relief from the penalty, Baccei cited cases involving former
Knappe attempts to distinguish Baccei on the grounds that Burns gave him erroneous advice about the extension he obtained, whereas the accountant in Baccei failed to request an extension at all. The distinction is without a difference. Both Knappe and Baccei instructed their respective agents to obtain extensions of the filing and payment deadlines. Both cases involved expert advice: both agents wrongly informed their principals that the filing and payment deadlines had been extended to a particular date. And both agents erred: Burns, because he misread the instructions and thought that the extension to the filing deadline was twice as long as was actually granted; and the accountant in Baccei, because he did not check the appropriate box and was awarded no extension of the payment deadline at all. We see no reason why an executor whose agent misinterpreted Form 4768‘s instructions should be entitled to a refund, but an executor whose agent filled out Form 4768 improperly should be denied one.
It is undisputed that an executor‘s reliance on expert advice constitutes reasonable cause in some cases. See, e.g., Kroll, 547 F.2d at 396. Taken together, Boyle and Baccei clarify that an executor‘s late filing will be excused only if he relied on “substantive” advice about an issue of tax law. Boyle, 469 U.S. at 251; Baccei, 632 F.3d at 1148 n. 3. All we must ask, then, is whether Knappe‘s reliance on Burns concerned a substantive tax question.
In arguing that Burns‘s advice about the extended deadline was substantive, Knappe relies heavily on Estate of La Meres v. Commissioner, 98 T.C. 294 (1992). In La Meres, the estate‘s representative understood the correct filing deadline for the estate-tax return, but needed additional time. Her lawyer advised her to apply for a six-month automatic extension of the filing deadline and a one-year extension of the payment deadline. Id. at 304-05. When the first extended due date for filing the estate-tax return approached, the representative realized she still needed more time, and again sought her lawyer‘s advice. The
We disagree that the issue here is substantive. At the time Knappe was preparing the return, the instructions to Form 4768 were unambiguous: they stated that an “automatic 6-month” extension is available, but that “[a]n additional extension is available only if you are an executor out of the country” (emphasis added). On the next page, the instructions reiterated the point in equally unambiguous language: “An executor may apply for an automatic 6-month extension of time to file Form 706.... Unless you are an executor out of the country (see below), the maximum extension of time to file is 6 months from the original due date of the applicable return.”
The relevant section of the Internal Revenue Code is no more ambiguous: “The Secretary may grant a reasonable extension of time for filing any return, declaration, statement, or other document required by this title or by regulations. Except in the case of taxpayers who are abroad, no such extension shall be for more than 6 months.”
We conclude that the question of when a return is due—even when an executor has sought an extension—is nonsubstantive. The deadlines here brook no debate. It was clear from the face of Form 4768, from the corresponding instructions, and from the governing statute that the maximum available extension of the filing deadline was six months. Burns himself testified that the deadline was “unambiguous.” See Boyle, 469 U.S. at 251 (“[R]eliance cannot function as a substitute for compliance with an unambiguous statute.“). The question of how long an extension was available was not a “debatable” one. Baccei, 632 F.3d at 1148 n. 3 (distinguishing cases that involved substantive advice on debatable tax questions); cf. Comm‘r v. Am. Ass‘n of Eng‘rs Emp‘t, Inc., 204 F.2d 19, 20-21 (7th Cir. 1953) (excusing a company from a tax penalty where the company relied on an attorney‘s substantive advice about whether the organization was tax-exempt). For that reason, Knappe cannot show reasonable cause to excuse his late filing.
3.
The line between substantive and nonsubstantive advice may not be perfectly bright, but it is surely more luminous than that between “delegation” and “reliance on advice,” which many courts have used to distinguish between reasonable and unreasonable taxpayer action. See, e.g., La Meres, 98 T.C. at 320. In Knappe‘s case, classifying his actions as delegation or reliance is simply a matter of framing. On
Instead, we treat the distinction between substantive and nonsubstantive matters as coterminous with the distinction between an executor‘s delegable and nondelegable duties. We have previously held that certain duties of the executor cannot be reasonably delegated to an agent. See Conklin Bros., 986 F.2d at 319 (observing that a taxpayer cannot rely on the negligence of an agent “to escape responsibility for the nonperformance of nondelegable tax duties“). Boyle touched on the boundaries of an executor‘s nondelegable duty: “Congress intended to place upon the taxpayer an obligation to ascertain the statutory deadline and then to meet that deadline, except in a very narrow range of situations.” 469 U.S. at 249-50 (emphasis added). We went further in Baccei, holding that the executor “was responsible for either identifying the payment deadline and ensuring that payment was made prior to that deadline, or confirming that a payment extension had been properly requested and granted.” 632 F.3d at 1149. Knappe was derelict in this duty: he did nothing to confirm that Burns had “properly requested” and obtained the one-year extension of the filing deadline that Burns told him the IRS had awarded. In fact, Burns had done neither: he improperly requested a one-year extension, and only obtained a six-month extension.
We reaffirm that an executor may only reasonably rely on an agent‘s advice about substantive tax matters. Boyle, 469 U.S. at 250-51. Ascertaining a deadline is within the ambit of the executor‘s nondelegable duties, because a deadline is a nonsubstantive matter. So too is confirming that a needed extension has been sought or obtained. It follows that ascertaining the length of any extension so obtained is equally nondelegable, because ascertaining an extended deadline is no more a substantive matter than ascertaining a default deadline.
As to deadlines, a responsible executor will not allow himself to be misled. When an attorney or accountant tells an executor, “This is the deadline,” the executor bears the risk that the advice is wrong. The rule is the same regardless of whether the payment deadline or the filing deadline is at issue, and regardless of whether the agent‘s erroneous advice results from his misunderstanding of the relevant rules or his negligence in seeking the appropriate extension. Reliance on erroneous advice about nonsubstantive tax law issues cannot constitute reasonable cause for an executor‘s failure to file a timely return. See Baccei, 632 F.3d at 1148 n. 3.
D.
We acknowledge that the result today imposes a heavy burden on executors, who will affirmatively have to ensure that their agents’ interpretations of filing and payment deadlines are accurate if they want to avoid penalties. This burden is justified by the government‘s substantial interest in ensuring that returns are timely filed. See Boyle, 469 U.S. at 249.
Moreover, any other result would reward collusion between culpable executors and their agents. In cases like this one, lawyers and accountants would be incentivized to claim that they gave erroneous advice to the executor whether or not they did in fact. The agent who fell on his sword would risk nothing, because the waiver of the penalty would leave the executor without damages. Even in cases in
E.
It was Knappe‘s duty to ascertain the correct extended filing deadline. By relying on his accountant‘s advice about that nonsubstantive matter, he failed to exercise ordinary business care and prudence, and he cannot show reasonable cause to excuse the penalty. We therefore affirm the judgment of the district court.
AFFIRMED.