Opinion ID: 1280645
Heading Depth: 3
Heading Rank: 4

Heading: Penalties and Interest on Late Taxes

Text: As a result of the late filing of estate tax returns, the estate was assessed $26,688.84 in penalties and interest. The master surcharged Gudschinsky this amount based on AS 13.16.485(b). [13] The master also cited 47 A.L.R.3d 507 (1973) for the general proposition that a personal representative is personally liable for penalties and interest if estate tax returns are filed late. Gudschinsky acknowledges this general rule but argues that it should not apply in her case. Gudschinsky makes several arguments to escape all or part of this surcharge. First, she argues that she reasonably relied on the advice of her accountant who, she claims, informed her that the returns had been timely filed. We have found no cases which absolve from liability a personal representative who took no steps to assure that the estate's tax return had been filed on time. See, e.g., In re Estate of Bartlett, 680 P.2d 369, 377 (Okla. 1984) (executor not excused by failure of legal counsel to notify him that taxes were due); In re Estate of Lohm, 440 Pa. 268, 269 A.2d 451 (1970) (executor should be aware that deadline exists); see also 47 A.L.R.3d 512 (1973) (fiduciary cannot escape liability if he blindly leav[es] all tax matters and considerations affecting an estate to his attorney). We agree with those courts which hold that if the personal representative displays some effort to ascertain the deadline or comply with it, then a delay might be justified. See, e.g., Estate of Smith, 767 S.W.2d 29, 36 (Mo. 1989) (personal representative not personally liable after asking accountant to secure filing extension); Giesen v. United States, 369 F. Supp. 33, 35 (W.D.Wis. 1973) (financially inexperienced executor asked and was assured by tax attorney that taxes would be filed on time); see also Wohl v. Lewy, 505 So.2d 525, 526 (Fla.App. 1987) (personal representative cannot be held liable for costs incurred in erroneously claiming tax deduction where he relied on advice of accountant). In Gudschinsky's case, she apparently left all tax matters to the accountant. Gudschinsky does not point to any evidence in the record which shows that she tried to find out when the taxes were due. She merely claims that she interpreted a conversation with her accountant to mean that the estate's tax returns had been filed on time. We find that Gudschinsky's mere passive acceptance of an interpretation of a conversation with her accountant does not relieve her of liability for penalties and interest. Second, Gudschinsky argues that she should not be held liable for the late penalties because Hartill, as the new personal representative, failed to appeal the State of Alaska's decision not to waive the tax penalty despite the fact that all other jurisdictions had done so. We see no reason why the estate or its new personal representative is under a duty to appeal the state's decision absent a showing that such an appeal had at least a reasonable likelihood of success. The mere fact that other jurisdictions waived their penalties does not establish a reasonable likelihood that such an appeal would succeed in Alaska. It is possible that the standard for granting waivers is higher in Alaska than in other jurisdictions. In any case, Gudschinsky cites no evidence that an appeal would likely have succeeded. In fact, the only evidence revealed by our own investigation of the record suggests that a successful appeal was unlikely. Finally, citing Orsini v. Bratten, 713 P.2d 791 (Alaska 1986), Gudschinsky argues that she should not have to pay the surcharge for interest on the late taxes. In Orsini, Orsini had given the Brattens erroneous investment and tax advice, including the incorrect claiming of investment tax credits on their tax returns. This resulted in state and federal interest penalties charged against the Brattens. Id. at 792. On appeal, we held that the Brattens could not recover these charges from Orsini: [T]he Brattens are not entitled to receive damages for interest repaid to either the federal government or to the state government. The Brattens had the use of these monies and, presumably, were able to earn interest while they held it. Therefore, paying the interest penalties effectively cost the Brattens nothing. Id. at 794. The master distinguished Orsini on the ground that the Brattens were individuals free to risk their money as they desired whereas Gudschinsky's role as personal representative did not allow her the same freedom. Although this distinction certainly exists, it is nevertheless true that a personal representative has the duty of prudently investing the assets of the estate until they are ready for distribution. In re Estate of Gregory, 487 P.2d 59, 64 (Alaska 1971). Bewley's estate was apparently receiving interest on its large reserves of cash. [14] We therefore reverse that part of the superior court's order affirming the master's surcharge for interest paid on late taxes. However, since we cannot determine from the master's decision the breakdown between the interest and the penalties, we remand to the superior court with directions to remand to the master to make such a determination and to assess only the penalties against Gudschinsky.