2014 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-13-2014

Estate of John RH Thouron v. USA

Precedential or Non-Precedential: Precedential

Docket No. 13-1603

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

________________

No. 13-1603

________________

THE ESTATE OF JOHN R.H. THOURON, 

CHARLES H. NORRIS, EXECUTOR

Appellant

v.

UNITED STATES OF AMERICA

________________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civil Action No. 2-11-cv-04058)

District Judge: Honorable Joel H. Slomsky

________________

Argued January 14, 2014

Before: AMBRO, HARDIMAN,

and GREENAWAY, Jr., Circuit Judges

(Opinion filed: May 13, 2014)
2

Joel L. Frank, Esquire

William H. Lamb, Esquire

Maureen M. McBride, Esquire (Argued)

Scot R. Withers, Esquire

Lamb McErlane

24 East Market Street

P.O. Box 565

West Chester, PA 19381

Counsel for Appellant

Zane D. Memeger

 United States Attorney

Kathryn Keneally

 Assistant Attorney General

Jonathan S. Cohen, Esquire (Argued)

Jennifer M. Rubin, Esquire

United States Department of Justice

Tax Division

950 Pennsylvania Avenue, N.W.

P.O. Box 502

Washington, DC 20044

William B. Russell, Jr., Esquire

United States Department of Justice

Tax Division

P.O. Box 55

Ben Franklin Station

Washington, DC 20044

Counsel for Appellee
3

________________

OPINION OF THE COURT

________________

AMBRO, Circuit Judge

The Estate of John Thouron (“the Estate”) filed a 

complaint contending that the Internal Revenue Service 

improperly failed to refund the penalty assessed the Estate for 

late payment of its tax liability. It argues that its reliance on 

the advice of its expert tax counsel excused the failure to pay

by the deadline set by statute. The United States (the 

“Government”), on behalf of the IRS, moved for summary 

judgment. The District Court granted the motion, holding 

that under Supreme Court precedent the Estate could not 

show “reasonable cause,” a required element to excuse late 

payment, based on expert advice under these facts. Because 

it may be possible for the Estate to establish reasonable cause, 

we vacate and remand for further proceedings in the District 

Court. 

I. Background

Sir John Thouron (“Thouron”) died on February 6, 

2007 at the age of 99, leaving behind a substantial estate. 

Because both his wife and only child predeceased him, 

Thouron’s two grandchildren are his only heirs. In his will, 

he named Charles H. Norris (“Norris”) executor of his estate. 

Norris, in turn, retained Cecil Smith (“Smith”), an 

experienced tax attorney, to provide tax advice for the Estate.

As discussed below, the Estate’s tax return and 

payment were initially due by November 6, 2007. On that 

date, the Estate filed a request for an extension of time to file 

its return and made a payment of $6.5 million, which was 
4

much less than it would ultimately owe. The Estate argues 

that it did not pay the balance of its liability or, in the 

alternative, request an extension of time to pay at least in part 

because of advice from Smith relating to the possibility of 

electing to defer certain liabilities under 26 U.S.C. § 6166. 

This provision allows qualifying estates to elect to pay a 

portion of their tax liability in installments over several years. 

As requested, the Estate received an automatic six-month 

extension of time to file the return, which put the deadline at

May 6, 2008.

The Estate timely filed its return in May 2008 and on 

the same day requested an extension of time to pay. It made 

no election to defer taxes under § 6166, because by that time 

it had conclusively determined it did not qualify. The IRS 

denied as untimely the Estate’s request for an extension of 

time to pay and subsequently notified the Estate that it was 

imposing a failure-to-pay penalty, which the Estate 

unsuccessfully appealed administratively. After losing the 

administrative appeal, the Estate filed an appropriate form 

and paid all outstanding amounts, including a penalty of 

$999,072, plus accrued interest on the penalty. Three months 

later, it filed a request with the IRS for a refund of that 

amount. After not receiving a response from the IRS, the 

Estate filed a complaint in the Eastern District of 

Pennsylvania seeking the refund and alleging that its failure 

to pay resulted from reasonable cause and not willful neglect 

(thus not subject to penalty). The Government moved for 

summary judgment, and the District Court granted the 

motion. The Estate timely appeals.

II. Jurisdiction and Standard of Review

Because the Estate is seeking the refund of a 

previously paid tax penalty, the District Court had jurisdiction 

under 28 U.S.C. § 1346(a)(1). We have jurisdiction under 28 
5

U.S.C. § 1291. We review summary judgment orders de 

novo. Hampton v. Borough of Tinton Falls Police Dep’t, 98 

F.3d 107, 111-12 (3d Cir. 1996). In this review, we apply the 

same test as the District Court, id. at 112, which states that

“[t]he court shall grant summary judgment if the movant 

shows that there is no genuine dispute as to any material fact 

and the movant is entitled to judgment as a matter of law.” 

Fed. R. Civ. P. 56(a). 

III. Analysis

Under the Internal Revenue Code, an estate is required 

to file an estate and gift tax return within nine months after 

the decedent’s death. See 26 U.S.C. § 6075. Unless properly 

extended or subject to some exception, the payment of tax is 

due at the same time as the relevant return. 26 U.S.C. 

§ 6151(a). Here, the nine-month deadline was November 6, 

2007. Although the Estate requested and received an 

automatic six-month extension of the time to file, “[a]n 

extension of time for filing a return does not operate to extend 

the time for payment of the tax.” Treas. Reg. § 20.6081-1(e); 

see also 26 U.S.C. § 6151(a) (stating that the payment 

deadline is “determined without regard to any extension of 

time for filing the return”). Therefore, despite the filing 

extension, the Estate was required to pay its full tax liability, 

ultimately calculated at just over $20 million, on or before the 

November deadline. Instead, the Estate paid only part of its 

tax liability, $6.5 million, by that date. 

If a tax is not paid in full by the prescribed due date, a 

mandatory penalty is assessed of “0.5 percent of the amount 

of such tax if the failure is for not more than 1 month, with an 

additional 0.5 percent for each additional month or fraction 

thereof during which such failure continues,” up to a 

maximum of 25 percent. 26 U.S.C. § 6651(a)(2). The 

penalty applies “unless it is shown that such failure is due to 
6

reasonable cause and not due to willful neglect.” Id. The 

“heavy burden” of showing both elements falls on the 

taxpayer. United States v. Boyle, 469 U.S. 241, 245 (1985). 

A taxpayer shows reasonable cause for failure to pay a

tax on time by establishing that “he [or she] exercised 

ordinary business care and prudence in providing for payment 

of his [or her] tax liability and was nevertheless either unable 

to pay the tax or would suffer an undue hardship . . . if he [or 

she] paid on the due date.” Treas. Reg. § 301.6651-1(c)(1). 

Among other things, the Estate argues that its reliance on the 

advice of Smith, a tax expert, as to the applicable tax law was

reasonable cause for the failure to pay its full tax liability by 

the November 2007 deadline. 

The District Court read the Supreme Court’s decision

in Boyle to preclude any finding of reasonable cause based on 

reliance on an expert or other agent. “The Court [there]

established a bright line rule that 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.’” Dist. Ct. Op. at 9-10 (quoting Boyle, 469 U.S. at 

252). Although the opinion of the District Court 

acknowledged that retaining Smith was an exercise of

“ordinary business care and prudence,” it concluded that 

“reliance on an agent for compliance with unambiguous 

deadlines does not constitute ‘reasonable cause’ for a late 

payment of tax within the meaning of Section 6651(a)(2).” Id. 

at 13. 

While Boyle was a late-filing case, the District Court 

adopted the reasoning of the Ninth Circuit Court in Baccei v. 

United States, 632 F.3d 1140 (9th Cir. 2011), to conclude that 

“the holding in Boyle applies with equal force to a failure to 

pay a tax because the ‘reasonable cause’ excuse for failing to 

file a return or pay a tax timely in both subsections is the 
7

same.”1 Dist. Ct. Op. at 11 (citing 26 U.S.C. § 6651(a)(1)-

(2)). We agree that Boyle is relevant to failure-to-pay cases. 

See E. Wind Indus., Inc. v. United States, 196 F.3d 499, 504 

n.5 (3d Cir. 1999). The District Court, however, applied 

Boyle more bluntly than would we. 

As we read it, Boyle identifies three distinct categories 

of late-filing or, by extension, late-payment cases. In the first 

category, a taxpayer relies on an agent for the ministerial task 

of filing or paying. See Boyle, 469 U.S. at 249-50. In the 

second, “in reliance on the advice of his [or her] accountant 

or attorney, the taxpayer files a return after the actual due date 

but within the time the adviser erroneously told him [or her]

was available.” Id. at 251 n.9. In the third, “an accountant or 

attorney advises a taxpayer on a matter of tax law[.]” Id. at 

251 (emphasis in original). 

By its facts, Boyle fits into the first category. Robert 

W. Boyle was the executor of the will of his mother, Myra 

Boyle, and retained an attorney, Ronald Keyser, on behalf of 

his mother’s estate. Id. at 242. Boyle “relied on Keyser for 

 1 Contrary to the District Court’s statement, the definitions of 

“reasonable cause” for failure to file and failure to pay are 

similar but not identical. Reasonable cause for failure to file is 

shown where “the taxpayer exercised ordinary business care 

and prudence and was nevertheless unable to file the return 

within the prescribed time[.]” Treas. Reg. § 301.6651-1(c)(1). 

Reasonable cause excuses failure to pay, as noted above, “to 

the extent that the taxpayer has made a satisfactory showing 

that he [or she] exercised ordinary business care and prudence 

in providing for payment of his [or her] tax liability and was 

nevertheless either unable to pay the tax or would suffer an 

undue hardship (as described in [Treas. Reg. § 1.6161-1(b)]) 

if he [or she] paid on the due date.” Id.
8

instruction and guidance.” Id. Although Boyle repeatedly 

checked in with Keyser on the status of the estate’s return, the 

attorney “overlooked the matter because of a clerical 

oversight in omitting the filing date from Keyser’s master 

calendar.” Id. at 243. As a result, the return was not filed 

until almost three months after the deadline. Id. In this 

context, the Court opined that executors have a “fixed and 

clear” duty to ensure that returns are timely filed that cannot 

be discharged by delegating responsibility to an attorney or 

accountant. Id. at 249-50; see also id. at 250 (“That the 

attorney, as the executor’s agent, was expected to attend to 

the matter does not relieve the principal of his duty to comply 

with the statute.”). Thus, when the Supreme Court reached 

the holding quoted by the District Court, the relevant 

“reliance on an agent” was for the administrative act of filing

the return. See id. at 252.

Boyle specifically did not reach the remaining

categories. It noted a split of authority as to the second 

category, citing, inter alia, our decision in Sanderling, Inc. v. 

Commissioner, 571 F.2d 174, 178-79 (3d Cir. 1978), as 

among those holding that a taxpayer could show reasonable 

cause where he or she filed (or paid) before what he or she 

was erroneously advised was the deadline. Boyle, 469 U.S. at 

251 n.9. The Court explicitly declined to resolve this dispute. 

Id. (“We need not and do not address ourselves to this 

issue.”). As to the third category, Boyle stated that “[t]his 

case is not one in which a taxpayer has relied on the 

erroneous advice of counsel concerning a question of law.” 

Id. at 250. In such cases, “[c]ourts have frequently held that 

‘reasonable cause’ is established when a taxpayer shows that 

he reasonably relied on the advice of an accountant or 

attorney that it was unnecessary to file a return, even when 

such advice turned out to have been mistaken.” Id. (citing 

cases). The Court identified our opinions in Hatfried, Inc. v. 

Commissioner, 162 F.2d 628, 633-35 (3d Cir. 1947), and 
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Girard Investment Co. v. Commissioner, 122 F.2d 843, 848 

(3d Cir. 1941), as among those so holding. 

The Court drew a distinction between relying an 

expert’s clerical action, as in the first category, and relying on 

expert’s advice, as in the second and third categories. 

Resolving questions of tax law is difficult, and “[m]ost 

taxpayers are not competent to discern error in the substantive 

advice of an accountant or attorney.” Boyle, 469 U.S. at 251. 

“By contrast, one 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.” Id. As the Court noted, lay people 

can and often do file or pay themselves. Id. at 251-52. For 

this reason, taxpayers may rely on the advice of an expert but 

may not, for purposes of completing their statutory duty, rely 

on an agent to perform the task of filing or paying.

Therefore, we read Boyle as reaching only the first 

category of cases and requiring only that reliance on another

to perform the ministerial task of filing or paying cannot be 

reasonable cause for failure to file or pay by the deadline. By 

any account, much less interpreting the facts in the light most 

favorable to the non-movant, that is not what occurred here. 

Hence we hold that a taxpayer’s reliance on the advice of a 

tax expert may be reasonable cause for failure to pay by the 

deadline if the taxpayer can also show either an inability to 

pay or undue hardship from paying at the deadline. Because 

there is at least a genuine dispute of material fact as to 

whether that reliance occurred here, it remains for the District 

Court, after further factfinding, to apply the law in light of 

this holding. 

* * * * *
10

Boyle dealt with a “clerical oversight” in failing to file 

a return by the deadline. It did not rule on when taxpayers 

rely on the advice of an expert, whether that advice relates to 

a substantive question of tax law or identifying the correct 

deadline. Our case is one of the failure of expert advice, not

(at least on the record before us) the failure of agent taskcompletion. Thus the Estate has the right to make, if it can, 

the showings required to avoid late-payment penalties and 

interest. We thus vacate and remand to the District Court for 

further proceedings.