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Liability for estate tax extension.


The Oregon Court of Appeals affirmed a verdict in favor of an accountant who failed to obtain an extension to pay the nondeferred portion of his client's federal estate tax.

The plaintiff, who was the personal representative of the deceased, hired the accountant to provide tax service to the estate. The estate assets consisted of a small amount of cash, rental properties and a large tract of undeveloped farm land valued at approximately $1,500,000.

The accountant obtained a 15-year deferral of approximately 70% of the tax on the undeveloped land under IRC section 6166. After discussions with the personal representative concerning cash that would be available to the estate within a short time, the accountant requested and obtained a six-month extension to pay the nondeferred portion of the tax.

Evidence at trial showed that the personal representative and her sister, a beneficiary of the estate, had withdrawn substantial funds from the estate before expiration of the six-month extension. The personal representative diverted other assets of the estate.

The plaintiff claimed the accountant was negligent for failing to request a further extension of time when the six-month extension expired. The IRS instituted collection proceedings two years later, after sending a number of notices to the personal representative both concerning the delinquency and accelerating the deferred portion of the tax. The accountant obtained a reinstatement of the deferral but was unable to get relief for the nondeferred portion.

In affirming the verdict for the accountant, the appellate court held the estate would not have qualified for a second extension even if the accountant had applied for one because the estate could not show reasonable cause for the inability to pay the nondeferred taxes.

On a second issue, the appellate court addressed whether the accountant had breached the standard of care by recommending the personal representative enter into a shared appreciation mortgage to obtain funds to pay the nondeferred portion of the tax. On this issue, the appellate court held the testimony of the plaintiff's expert witness was insufficient to establish a breach of the standard of care. The expert testified the advice was "improper" and was something "I wouldn't have done" but failed to relate the alleged deficiencies in the advice to the standard of care owed by the reasonably careful accountant to a client. (Halverson v. Sooy, Oregon Court of Appeals, CA A49053, decided 11/08/89)
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Article Details
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Author:Baliga, Wayne J.
Publication:Journal of Accountancy
Date:Feb 1, 1990
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