The opinion
ADELAIDE MCCOLGAN, ADMINISTRATRIX WITH THE WILL ANNEXED, ESTATE OF DANIEL A. MCCOLGAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
McColgan v. Commissioner
Docket No. 3147.
United States Board of Tax Appeals
10 B.T.A. 958 ; 1928 BTA LEXIS 3994 ;
February 23, 1928 , Promulgated
*3994 (1) The respondent's determination of the amount of the decedent's net estate subject to the Federal estate tax, approved.
(2) The petitioner's failure to file an estate-tax return for the decedent's estate held to be due to reasonable cause and not to willful neglect.
George D. Collins, Jr., Esq., for the petitioner.
L. Dana Latham, Esq., for the respondent.
MARQUETTE
*959 This proceeding is for the redetermination of a deficiency in estate tax in the amount of $3,222.36. The deficiency letter also asserts a delinquency penalty of $1,280 for failure by the petitioner to file an estate-tax return within the time required by law.
FINDINGS OF FACT.
Daniel A. McColgan, a resident of the State of California, died testate on May 21, 1921, at San Francisco. Reginald McColgan, a brother of Daniel McColgan, was named in the will as executor thereof but he declined to qualify and the petitioner, a sister of Daniel A. McColgan was duly appointed and qualified as administratrix with the will annexed, and she is now, and has been since her appointment, such administratrix.
The only property owned by Daniel McColgan consisted of a one-half *3995 interest in a partnership engaged in the real estate and loan business, which had been in existence since some time prior to 1913. The assets of the partnership were composed of real estate and personal property and included an undivided one-fourth interest in lots 1, 5 and 6, and tract 949 in Arcadia, Calif., subject to two life interests, the life tenants being of the ages of 45 and 73 years, respectively. The partnership has not yet been wound up because of litigation involving its assets, which assets are still in the possession and control of the surviving partner, Reginald McColgan. None of the partnership property has ever been turned over to the petitioner and there is not now, nor has there ever been, any property of the decedent belonging to the partnership, in her possession or under her control.
The petitioner, as administratrix with the will annexed of the estate of Daniel A. McColgan, did not, within the time required by law, file an estate-tax return for the estate, she having been advised by an attorney on whom she relied for advice and direction concerning her duties as administratrix, that under the circumstances a return was not necessary or required by law. *3996 However, or August 16, 1923, she filed an estate-tax return for the estate on Form 706, reporting a gross estate of $175,429.11, a net estate of $120,158.25 and tax due thereon in the amount of $1,903.16. On December 6, 1923, she filed on Form 704 the "preliminary notice" required by section 404 of the Revenue Act of 1918. The respondent, upon audit of the return, increased the gross estate from $175,429.11 to $292,788.05. Such increase is due in part to the fact that the respondent determined that the partnership's undivided one-fourth interest in the land in Arcadia, Calif., was of the value of $207,025.15 and adjusted the value of the decedent's interest in the partnership accordingly. Upon the basis of the value of the decedent's estate, as so increased, *960 the respondent determined a deficiency in tax in the amount of $3,222.36. He also asserted the delinquency penalty of 25 per cent of the total tax amounting to $1,280 under the provisions of section 3176 of the Revised Statutes as amended by section 1317 of the Revenue Act of 1918. The deficiency letter was mailed to the petitioner on February 6, 1925.
OPINION.
MARQUETTE: Three contentions are made by the *3997 petitioner herein: (1) That there is no estate of the decedent taxable now or at any time in the past; (2) that the respondent erred in determining the value of the partnership interest in the Arcadia real estate in that he did not take into consideration that the value of an undivided one-fourth interest is less than one-fourth of the value of the entire estate; and (3) that the penalty imposed by the respondent because of the petitioner's failure to file an estate-tax return within the time required by law is unauthorized and erroneous. The several contentions will be discussed in the order in which they are stated.
We find no merit in the petitioner's first contention. It may be conceded without argument that, as urged by the petitioner, the partnership assets, as such, formed no part of the decedent's estate. There did, however, at his death, pass to his estate the right to share in the partnership assets, when distributed, remaining after payment of its debts; and it is the value of that right or interest which is the measure of the tax involved herein. In determining the value of said right or interest the respondent very properly took into consideration the value of the *3998 partnership assets.
The petitioner also contends that the partnership's undivided one-fourth interest in the Arcadia property as determined by the respondent, should be reduced by 25 per cent for the reason that the value of an undivided one-fourth interest is less than one-fourth of the value of the entire property. However, no satisfactory evidence was introduced to show what the value of the interest in question was, and we affirm the determination of the respondent.
Upon consideration of the evidence presented as to the third issue we are of the opinion that the delinquency penalty for failure on the part of the petitioner to file an estate-tax return within the time required by law should not be asserted. The petitioner is a woman evidently unfamiliar with either the laws of California or the United States. She relied upon an attorney who advised her that under the circumstances the filing of an estate-tax return for the decedent's estate was not required. She followed that advice. That she believed, and still believes, that the attorney's advice is sound, is evidenced by the first contention made herein, namely, *961 that there is no property of the decedent *3999 subject to the estate tax. We think that under the circumstances the petitioner's failure to file an estate-tax return on time was due to reasonable cause and not to willful neglect and that, therefore, the imposition of a penalty for such failure is not authorized.
Reviewed by the Board.
Judgment will be entered on 15 days' notice, under Rule 50.