Tax Court denies IRS accuracy-related penalty because estate reasonably and in good faith relied on advisor’s estate planning advice: Estate of Robinson v. Comm'r (August 2, 2010)

James Robinson, decedent's son and executor of the estate, hired John Schlabach  to provide estate planning services for decedent. Schlabach provided services and advice regarding trusts, estate taxes, and charitable gifts.

The IRS determined a deficiency in the Federal estate tax and imposed an accuracy-related penalty under 26 USCS § 6662. The estate conceded the deficiency but challenged its liability for the penalty.

The Tax Court held that:

The accuracy-related penalty does not apply with respect to any portion of an underpayment if it is shown that there was reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion. The determination of whether a taxpayer acted with reasonable cause and in good faith depends on the pertinent facts and circumstances. . . .

Good faith reliance on the advice of an independent, competent professional as to the tax treatment of an item may constitute reasonable cause. . . .

A  taxpayer's reliance must be in good faith and demonstrably reasonable. In such a case, a taxpayer will be entitled to rely upon a competent expert's advice, even if the advice should prove to be erroneous.

(citations and footnotes omitted)

In concluding that James reasonably and in good faith relied on Schlabach and that the estate was not liable for the accuracy-related penalty, the Tax Court noted that:

• James was unsophisticated in tax matters;
• James believed Schlabach was competent in estate planning;
• James believed Schlabach had estate planning expertise; and
• Schlabach prepared James' income tax returns for about 11 years without incident

Lexis.com subscribers can view the enhanced version of Estate of Ralph Robinson v. Comm'r, T.C. Memo 2010-168 (T.C. 2010)

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