                        T.C. Memo. 1995-547



                      UNITED STATES TAX COURT



               DAVID BRUCE MCMAHAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13252-87.            Filed November 20, 1995.



     David J. Fischer and Matthew D. Lerner, for petitioner.

     Lyle B. Press and David Williams, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   Respondent determined a deficiency of

$1,555,601 in petitioner's 1982 Federal income tax and an
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addition to tax pursuant to section 6651(a)(1)1 in the amount of $337,264.

     The issue in this case is whether petitioner, who relied on

his employee to file an application for an extension of time to

file his 1982 Federal income tax return, had reasonable cause for

not filing his return in a timely manner.   We hold that

petitioner did not establish reasonable cause and that the

addition to tax for failure to file his return in a timely manner

should apply.

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

     Petitioner resided in Pelham Manor, New York, at the time he

filed his petition.

     Petitioner was a founding and general partner of McMahan,

Brafman, Morgan & Co. (MBMC).   MBMC, a broker-dealer in

Government securities and stock options, was organized as a

limited partnership.   Prior to forming MBMC, petitioner conducted

various business enterprises.   From 1966 to 1974, petitioner

invested on behalf of clients in the options and convertible bond

markets.   He then became the National Institutional Options

Director for PaineWebber, Inc., and served in that capacity until

July of 1976.   Following his tenure at PaineWebber, Inc., he was

hired as a partner at Bear, Stearns & Co. in New York.     He

     1
      All section references are to the Internal Revenue Code in
effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
                              - 3 -

remained at Bear, Stearns & Co. until the summer of 1980, the

year he founded MBMC.

     James Russell, a lawyer with expertise in tax, estate,

corporate, and investment matters, was a special limited partner

in charge of investment banking at MBMC.2   Mr. Russell first met

petitioner in the summer of 1977 when petitioner approached him

for legal advice regarding an upcoming business deal.    In the

fall of that year, Mr. Russell went into business as petitioner's

partner in various investments relating to computer application

programs and oil and gas exploration.

     Mr. Russell's responsibilities at MBMC included handling

petitioner's personal tax matters.    He prepared and filed

petitioner's 1980 and 1981 Federal income tax returns and

represented petitioner before the Internal Revenue Service (the

Service) in connection with those returns.3

     On April 14, 1983, Mr. Russell prepared and filed an

application for an automatic extension of time to file

petitioner's 1982 Federal income tax return.    He attached

petitioner's check in the amount of $360,000, which represented

Mr. Russell's estimate of petitioner's 1982 tax liability.    Mr.

Russell advised petitioner that the extension request had been




     2
      Mr. Russell received his LL.B. from Harvard Law School and
his LL.M. in taxation from New York University School of Law.
     3
      He also prepared petitioner's 1978 and 1979 tax returns.
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                                 4 -

filed and that the new deadline to file the return was August 15,

1983.

     Toni-Ann Supino served as petitioner's executive manager and

assistant.   She managed petitioner's personal and business

matters and was responsible for keeping petitioner informed about

deadlines.   Ms. Supino was aware of the August 15, 1983, deadline

for filing petitioner's return and monitored the deadline

pursuant to her standard office procedures.   She recorded in her

calendar this deadline and all of petitioner's other business and

personal deadlines.   In addition, she made an entry on the page

of her calendar corresponding to a date several weeks prior to a

deadline so that she could monitor the appropriate employees to

ensure that the deadline was met.4

     In May or June of 1983, the executive committee of MBMC made

a decision to transfer responsibility for preparing the general

partners' tax returns, including petitioner's, to Gerald Marcus,

a partner at the accounting firm of Oppenheim, Appel, Dixon & Co.

(OAD).   Mr. Russell, however, was not relieved of his

responsibility to file petitioner's return until mid-August, and

documents relating to petitioner's return were not transferred

from Mr. Russell to OAD until after the August 15, 1983,

deadline.


     4
      Her daily responsibilities were recorded in her "to-do"
list. She rewrote this list each night, eliminating those tasks
that had been accomplished and adding new responsibilities.
                               - 5
                                 5 -

     Beginning 2 to 3 weeks prior to August 15, 1983, Ms. Supino

repeatedly reminded Mr. Russell about the upcoming deadline.      Mr.

Russell assured her each time that he would file the appropriate

forms.   During this time period, petitioner asked Mr. Russell

whether the return was ready to be filed.    Mr. Russell informed

petitioner that it was not ready to be filed but that he believed

the Service would grant a second extension.    Petitioner was aware

that such extensions were not automatic.

     During the week prior to August 15, 1983, petitioner asked

Mr. Russell about the status of his 1982 return.    Mr. Russell

told him that he had filed the second extension request.    Mr.

Russell also assured Ms. Supino that he had filed it, and she

informed petitioner.   After receiving these assurances,

petitioner went on vacation.   When he returned in September,

however, he discovered that the second extension request had not

been filed.

     On March 14, 1984, OAD filed petitioner's 1982 individual

income tax return.   The return reported a tax liability of

$86,252 and an overpayment of $273,748.5    Petitioner filed an

amended return dated May 1, 1984, that reported a net increase in

taxable income of $399,364 and a corresponding new tax liability

of $154,596.   On February 12, 1987, respondent issued a notice of

     5
      Petitioner had paid $360,000 with the application for the
first extension. Since the total tax liability was only $86,252,
the overpayment was calculated as follows: $360,000 - $86,252 =
$273,748.
                                 - 6
                                   6 -

deficiency that determined an increase in taxable income as well

as an addition to tax under section 6651(a)(1).       The amount of

the increase in taxable income was settled by a Stipulation of

Settlement dated October 18, 1994.       This settlement increased

petitioner's taxable income by $1,536,047 and resulted in a

revised tax liability of $924,111.

     The parties have stipulated that the amount of the addition

to tax under section 6651(a)(1), if it applies, is $141,028.

                                OPINION

     Section 6651(a)(1) imposes an addition to tax for failure to

file an income tax return by the due date, including extensions,

unless it is shown that the failure is due to reasonable cause

and not due to willful neglect.    A failure to file in a timely

manner is due to "reasonable cause" if the taxpayer exercised

"ordinary business care and prudence" and was nevertheless unable

to file the return within the time prescribed.      Sec. 301.6651-

1(c)(1), Proced. & Admin. Regs.    The burden of proof is on the

taxpayer.    Rule 142(a); Ehrlich v. Commissioner, 31 T.C. 536, 540

(1958).     The issue before this Court is whether petitioner's

reliance on his attorney to file an extension request constitutes

ordinary business care and prudence and thus reasonable cause.

I.   Petitioner Relied on Mr. Russell To File

     We must first determine whether petitioner relied on Mr.

Russell.     We find that petitioner did so rely.
                                - 7
                                  7 -

       Mr. Russell was responsible for preparing and filing

petitioner's 1982 income tax return.    In May or June of 1983,

MBMC decided to transfer the responsibility from Mr. Russell to

OAD.    Documents relating to the preparation of the return,

however, were not transferred from him to OAD until after the

August 15, 1983, deadline.    There is no evidence that anyone

other than Mr. Russell had responsibility for the return before

that responsibility was assumed by OAD.    Petitioner continued to

ask Mr. Russell about the status of the return through mid-

August, and Mr. Russell continued to assure petitioner and Ms.

Supino that the extension request would be filed on time.       Thus,

we find that Mr. Russell had the responsibility through August

15, 1983, to file petitioner's return (or extension request).

       Mr. Russell testified that he was not responsible for filing

petitioner's return.    His testimony was not credible.   When he

was questioned about the second extension request, he could not

recall various details, including whether he had:    (1) Been asked

by petitioner to file a second extension request; (2) discussed a

second extension request with petitioner; (3) prepared a second

extension request; or (4) represented to petitioner that a second

extension request had been filed.    Thus, we attach little weight

to his testimony regarding the extension requests and find that

petitioner relied on Mr. Russell.

       Respondent notes that, in May or June, MBMC decided to

transfer responsibility for the return to OAD and argues that
                                   - 8
                                     8 -

petitioner consequently could not have relied on Mr. Russell to

file it.       Respondent, however, ignores the fact that the decision

to transfer responsibility was not executed until mid-August.6

Thus, we find respondent's argument unpersuasive on this point.



II.    Reliance on an Agent To File Does Not Establish Reasonable
      Cause

       Next we must determine whether petitioner's reliance on Mr.

Russell to file petitioner's extension request constitutes

reasonable cause.       We hold that such reliance does not constitute

reasonable cause.

       A taxpayer who files his return after the deadline cannot

establish reasonable cause by proving that he relied on his

attorney or accountant to file his return.       United States v.

Boyle, 469 U.S. 241, 250 (1985); Estate of La Meres v.

Commissioner, 98 T.C. 294, 315 (1992); Zabolotny v. Commissioner,

97 T.C. 385, 400 (1991), affd. in part and revd. in part 7 F.3d

774 (8th Cir. 1993); Boatman v. Commissioner, T.C. Memo. 1995-

356.       In Boyle, the leading case on whether reliance on an agent

constitutes reasonable cause, the executor of an estate relied on

an attorney to file the estate's tax return.       The executor's

attorney assured him that the return would be filed "in plenty of

time".       When the executor learned that the return had not been

filed in a timely manner, the executor argued that his reliance

       6
        Petitioner did not rely on OAD to file the extension.
                                  - 9
                                    9 -

on the attorney constituted reasonable cause.       The Court rejected

this argument and held for the United States.       United States v.

Boyle, supra at 249-250.

     Applying agency principles to the relationship between the

taxpayer and the attorney, the Supreme Court observed:      "Congress

has placed the burden of prompt filing on the executor, not on

some agent or employee of the executor.     * * *   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."   Id. at 249-250.     A narrow exception exists where a

taxpayer is physically incapacitated and thus unable to file.

Id. at 248 n.6, 253 (Brennan, J., concurring); Harbour v.

Commissioner, T.C. Memo. 1991-532.

     Petitioner contends that there is a fundamental difference

between filing a return and filing an extension request.       See

Fleming v. United States, 648 F.2d 1122, 1127 (7th Cir. 1981)

(Cudahy, J., dissenting).    He argues that, in the case of an

individual income tax return, the taxpayer must sign the return

before it can be filed.    See sec. 6061; sec. 1.6061-1(a), Income

Tax Regs.7   By contrast, an extension request does not require

the taxpayer to sign but rather provides, as an alternative, that


     7
      Petitioner fails to acknowledge that a taxpayer's agent may
sign the return where the taxpayer is physically unable to sign,
absent from the United States for at least 60 days, or a
nonresident alien required to file a Form 1040NR. See secs.
1.6061-1(a), 1.6012-1(a)(5) and (b), Income Tax Regs.
                                  - 10
                                    10 -

the taxpayer's agent may sign.       See sec. 1.6081-1(b)(1), Income

Tax Regs.

        Petitioner reasons that underlying the holding in United

States v. Boyle, supra, is a policy to impose the addition to tax

only where the taxpayer is actively involved in the process of

filing.       Because the regulations sanction delegation of the act

of signing the extension request, petitioner concludes that they

must also sanction delegation of the duty to file it.8

        Petitioner's argument is not persuasive.    An agent's failure

to file an extension request is tantamount to an agent's failure

to file a return.       See Fleming v. United States, supra at 1127;

cf. est, An Educational Corp. v. Commissioner, T.C. Memo. 1986-

527.9       It would be anomalous to excuse a late return where the

taxpayer asked his agent to file an extension request but not

excuse a late return where the taxpayer asked his agent to file a

return.       See Twin City Constr. Co. v. United States, 515 F. Supp.

767, 770 (D.N.D. 1981).       Thus, we reject petitioner's argument.

        Petitioner also argues that reasonable cause should be found


        8
      This argument was considered and rejected in Twin City
Constr. Co. v. United States, 515 F. Supp. 767, 770 (D.N.D.
1981). See also Fleming v. United States, 648 F.2d 1122 (7th
Cir. 1981).
        9
      We note that United States v. Boyle, 469 U.S. 241 (1985),
has been applied where taxpayers have relied on agents to file
extensions. See Bergersen v. Commissioner, T.C. Memo. 1995-424;
Scimeca v. United States, 735 F. Supp. 300 (N.D. Ill. 1990);
Estate of Cox v. United States, 637 F. Supp. 1112 (S.D. Fla.
1986).
                              - 11
                                11 -

in this case because he was told by Mr. Russell that the

extension request had been filed.    While a taxpayer may establish

reasonable cause by demonstrating that he relied on the tax

advice of an expert, reliance on an agent to file a return does

not establish reasonable cause.     United States v. Boyle, supra at

250; Estate of La Meres v. Commissioner, supra at 315; Zabolotny

v. Commissioner, supra at 400.    The Supreme Court provided the

following rationale for distinguishing between relying on an

agent's expert advice and relying on an agent to file a return:

          When an accountant or attorney advises a taxpayer
     on a matter of tax law, such as whether a liability
     exists, it is reasonable for the taxpayer to rely on
     that advice. Most taxpayers are not competent to
     discern error in the substantive advice of an
     accountant or attorney. To require the taxpayer to
     challenge the attorney, to seek a "second opinion," or
     to try to monitor counsel on the provisions of the Code
     himself would nullify the very purpose of seeking the
     advice of a presumed expert in the first place. * * *

          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. In short, tax returns imply
     deadlines. Reliance by a lay person on a lawyer is of
     course common; but that reliance cannot function as a
     substitute for compliance with an unambiguous statute.
     * * * [United States v. Boyle, supra at 251.]

     In the present case Mr. Russell did not render an opinion on

a matter of tax law.   Petitioner did not need to conduct any

research to ensure the extension request was filed before the

deadline.   He knew that August 15, 1983, was the deadline to

either file the return or obtain an extension.    He also knew that

the second extension request had to be approved by the Service.
                                - 12
                                  12 -

     Petitioner was responsible for ensuring that the extension

request and return were filed on time and must accept the

consequences for the agent's failure to complete the task.

Petitioner's reliance on Mr. Russell to file the extension

request is no more a defense to the addition to tax than was the

executor's reliance on his agent to file the return in Boyle.

See Fleming v. United States, supra at 1125-1126; Vocelle v.

Commissioner, T.C. Memo. 1968-5; Scimeca v. United States, 735 F.

Supp. 300, 302 (N.D. Ill. 1990); Estate of Cox v. United States,

637 F. Supp. 1112, 1115 (S.D. Fla. 1986); Sarto v. United States,

563 F. Supp. 476, 478 (N.D. Cal. 1983).

     This conclusion is supported by tax policy considerations.

In our case, petitioner relied on Mr. Russell, whom he regarded

as a "partner, a friend, and a trusted advisor", to file the

extension request.   When respondent determined an addition to tax

for failure to file in a timely manner, however, petitioner

blamed Mr. Russell for the late filing, and during the trial Mr.

Russell could not recall any details relating to the second

extension request.   Our holding in this case places the

incentives where they belong.    Taxpayers are subject to the

addition to tax if their returns are not filed on time and may

seek reimbursement from their agents on grounds of malpractice or

breach of fiduciary duty.   The integrity of our tax collection

system would be eroded if taxpayers under these circumstances
                             - 13
                               13 -

could establish reasonable cause for filing returns in an

untimely manner.

     We have considered petitioner's other arguments and found

them to be without merit.

     Accordingly, we sustain respondent's determination that

petitioner is liable for the addition to tax under section

6651(a)(1).

     To reflect the foregoing,


                                     Decision will be entered

                                 under Rule 155.
