This case involves Dolores J. Murphy, as Trustee of the Charles M. Murphy Administrative Trust, seeking a refund of tax penalties and related interest imposed by the IRS for the late filing of the 2016 and 2017 tax returns for the trust, as well as penalties assessed in the 2021 tax year and declaratory relief (Dolores J. Murphy et al. v. United States, US DC ED CA, Case No. 1:24-cv-00260, February 19, 2025). The government moved to dismiss the refund claim related to the 2016 tax year as untimely under Federal Rule of Civil Procedure 12(b)(1) and both the 2016 and 2017 claims under Rule 12(b)(6), asserting that Murphy had not set forth any facts that would constitute reasonable cause for the late filing. The government also sought dismissal of the requests for declaratory relief as statutorily barred and dismissal of the claims related to the 2021 tax year as moot or jurisdictionally barred. The court denied in part and granted in part the government’s motion to dismiss.

Facts of the Case

Charles M. Murphy passed away on November 28, 2016, and Dolores J. Murphy is his surviving spouse and the trustee of the Charles M. Murphy Administrative Trust.
On January 7, 1993, Ms. Murphy and Mr. Murphy created a revocable grantor trust (the “Murphy Family Trust”), which included 89,955 shares of stock of Murphy Bank.
Mr. Chaltraw, a certified public accountant, provided tax advice and prepared federal and state income tax returns for Murphy Bank, Ms. Murphy, and Mr. Murphy. After Mr. Murphy’s death, Mr. Chaltraw continued in this role for Murphy Bank, Ms. Murphy, and the Administrative Trust.
Mr. Chaltraw prepared tax returns for Murphy Bank, Ms. Murphy, and Mr. Murphy for the 2016 and 2017 tax years. Ms. Murphy and the chief financial officer of Murphy Bank provided Mr. Chaltraw with all necessary information and documents. Ms. Murphy relied on Mr. Chaltraw to prepare complete and accurate returns and did not thoroughly review the forms.
In February 2019, Ms. Murphy’s tax counsel discovered that no tax returns had been filed for the Administrative Trust for the 2016 or 2017 tax years. Some of the S corporation items of Murphy Bank and other income were incorrectly attributed to the individual tax returns of Mr. and/or Ms. Murphy. These errors occurred due to Mr. Chaltraw’s erroneous tax advice. Mr. Chaltraw then remedied the errors.
On July 15, 2020, Ms. Murphy filed late the Administrative Trust’s U.S. Income Tax Return for Estates and Trusts (Form 1041) and the Administrative Trust’s U.S. Information Return Trust Accumulation of Charitable amounts (Form 1041-A) for the 2016 tax year. She submitted a check for the tax and accrued interest due and requested that the IRS forego assessing penalties, claiming the lateness was due to reasonable cause and not willful neglect.
On July 31, 2020, Ms. Murphy filed late tax return Forms 1041 and 1041A on behalf of the Administrative Trust for the 2017 tax year, with a similar request to waive penalties.
The IRS processed the 2016 Form 1041-A and assessed late filing penalties of $8,270.00 under 26 U.S.C. § 6652. The 2016 Form 1041 was processed, and the IRS assessed a late filing penalty of $9,523.35 under 26 U.S.C. § 6651(a)(1) and a late payment penalty of $8,465.20 under 26 U.S.C. § 6651(a)(2), as well as interest in the amount of $9,325.26. The IRS processed the 2017 Form 1041-A and assessed late filing penalties and interest of $8,480.00 under 26 U.S.C. § 6652. The 2017 Form 1041 was processed, and the IRS assessed late filing penalties of $60,712.42 under 26 U.S.C. §6651(a)(1) and late payment penalties of $37,776.62 under 26 U.S.C. §6651(a)(2), as well as interest in the amount of $44,429.55.
Ms. Murphy alleges that the penalties and interest assessed for the 2016 Form 1041-A, the 2017 Form 1041-A, and the 2017 Form 1041 were paid in full to the IRS on or after October 11, 2021, from the Administrative Trust’s overpayment of taxes for the 2020 tax year. The government asserts the penalties and interest were paid effective April 15, 2021.
On January 7, 2022, Ms. Murphy’s tax counsel submitted a request via email to the IRS for the abatement of all penalties and interest. On February 3, 2022, the IRS abated the penalties and interest associated with the 2016 Form 1041. On February 22, 2022, Murphy’s tax counsel had a conversation with an IRS technical specialist who stated that the other three requests had been “missed” or “overlooked” and would be reviewed.
On March 3, 2022, the IRS denied Ms. Murphy’s request to abate the penalties and interest associated with the 2017 Form 1041. On May 2, 2022, Ms. Murphy filed a “Protest and Administrative Appeal of Service Center’s Denial of Request to Abate Civil Penalties,” requesting that the IRS reconsider its denial and abate and refund the penalties and interest associated with the 2016 Form 1041-A and the 2017 Form 1041-A.
Ms. Murphy alleges that on October 10, 2023, she filed formal (Form 843) administrative claims with the IRS requesting abatement and refund of the penalties and interest associated with the 2017 Form 1041, 2017 Form 1041-A, and 2016 Form 1041-A. The government asserts the relevant filing date is October 18, 2023.
On February 9, 2024, the IRS denied Ms. Murphy’s claim regarding the 2016 Form 1041-A, stating that Ms. Murphy filed her claim more than the greater of three years after filing the tax return or two years after paying the tax or balance due. The IRS also noted that it had previously granted her claim regarding the 2017 Form 1041-A.
Ms. Murphy alleges that the IRS paid some of the penalties and interest associated with the 2017 Form 1041 and the 2016 Form 1041-A by a credit transfer from the Administrative Trust’s overpayment of federal income tax for the 2020 tax year. As she intended that overpayment to be applied to the Administrative Trust’s taxes for the 2021 taxable year, the IRS’s credit transfer of the funds to the earlier year caused the Administrative Trust to be assessed tax penalties for the 2021 tax year.
Ms. Murphy requests that the IRS notice issued March 3, 2022, denying her claim as to the 2017 Form 1041 and the IRS notice issued February 9, 2024, denying her claim as to the 2016 Form 1041-A “be ordered and adjudged invalid, null, and void”. She requests a refund of the penalties and interest assessed for the 2017 Form 1041 and 2016 Form 1041-A and a refund of the 2021 tax penalties assessed.

Taxpayer’s Arguments for Relief

Ms. Murphy sought a refund of tax penalties and related interest that the IRS imposed for the late filing of the 2016 and 2017 tax returns for the trust. She also sought a refund of penalties assessed in the 2021 tax year related to the payment of the 2016 and 2017 penalties and declaratory relief that the IRS’s denials of her claims are invalid, null, and void. Ms. Murphy argued that the late filings were due to reasonable cause and not willful neglect, citing reliance on her long-term certified public accountant, Mr. Chaltraw, who provided erroneous tax advice. She asserted that she provided Mr. Chaltraw with all necessary information and relied on him to prepare complete and accurate returns.

Court’s Analysis of Law and Authorities

Jurisdiction to Hear 2016 Form 1041-A Claim: The government argued that Ms. Murphy’s claim regarding the penalties and interest associated with the 2016 Form 1041-A should be dismissed under Rule 12(b)(1) as jurisdictionally barred, asserting that Ms. Murphy did not timely file an administrative claim for refund with the IRS. The court noted that for it to have jurisdiction, Ms. Murphy must have timely filed an administrative claim for refund with the IRS, according to 26 U.S.C. §§ 7422. The parties agreed that to be considered timely, Ms. Murphy’s administrative claim must have been filed within the later of three years from the time the tax return was filed or two years from the date of the payment she seeks to have refunded, per 26 U.S.C. §§ 6511(a), 6511(b)(1).
The court considered the "informal claim doctrine," a judicially-created exception to the tax code’s timeliness requirements. It stated that a taxpayer may stop the statute of limitations from tolling through the filing of a claim for refund, even if that claim is technically deficient, so long as it meets certain requirements and is later corrected by the filing of a formal refund claim. The court referenced Libitzky v. United States, 110 F.4th 1166, 1173 (9th Cir. 2024) and Kales v. United States, 314 U.S. 186, 194-95 (1941). An informal claim is sufficient if it (1) gives notice to the Commissioner of the IRS that the taxpayer is asserting a right to a credit or refund; (2) states the legal and factual basis for the claim; and (3) is in writing or has a written component.
Reasonable Cause for Late Filing: The government argued that Ms. Murphy’s 2016 and 2017 claims should be dismissed under Rule 12(b)(6) for failure to state a claim upon which relief may be granted, asserting that Ms. Murphy has not alleged facts that could support a finding that Ms. Murphy had reasonable cause for late filing of the Administrative Trust’s tax returns.
The court noted that a taxpayer will not be liable for penalties due to late filing or late payment if the taxpayer can show that such failure was due to reasonable cause and not due to willful neglect, according to 26 U.S.C. §§ 6651(a)(1)-(2). The taxpayer bears the burden of proving both (1) that the failure did not result from ’willful neglect,’ and (2) that the failure was ’due to reasonable cause’. The court cited United States v. Boyle, 469 U.S. 241, 245 (1985). The court stated that willful neglect means a conscious, intentional failure or reckless indifference. If the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time, then the delay is due to a reasonable cause, per 26 C.F.R. § 301.6651–1(c)(1).
The court distinguished the case from those where the taxpayer knew of the obligation to file but relied on an agent to meet the deadline, citing Boyle, 469 U.S. 241; Conklin Bros. of Santa Rosa, Inc. v. United States, 986 F.2d 315 (9th Cir. 1993); Specht v. United States, 661 Fed. App’x 357 (6th Cir. 2016); Lindsay v. United States, 4 F.4th 292 (5th Cir. 2021). Instead, the court found the facts more closely resembled those of Haywood Lumber & Min. Co. v. C.I.R., 178 F.2d 769, 771 (2d Cir. 1950), cited in Boyle, where the taxpayer was not required to challenge his tax expert.
The court also cited Henry v. Commissioner, 170 F.3d 1217, 1223 (9th Cir. 1999), where the Ninth Circuit overturned a tax court decision that had found the taxpayer liable for penalties.
The government argued that Ms. Murphy did not allege that she received advice, but rather that she received a lack of advice, and the advice relied upon must be affirmative. The government cited *Schweizer v. Comm’r, T.C. Memo 2022-102, 2022 WL 5239291, at *5 (Oct. 6, 2022); Neonatology Associates, 115 T.C. at 100; Giambrone v. Comm’r, T.C. Memo 2024-47, 2024 WL 1675086, at 12 n.1 (April 18, 2024).
The government argued that Ms. Murphy had a duty to review her return and did not actually read or review the tax returns, citing *Corning Place Ohio, LLC v. Comm’r, T.C. Memo. 2024-72, at 30 (2024); Prudhomme v. Comm’r, 345 F. App’x 6, 11–12 (5th Cir. 2009).
Prayer for Declaratory Relief: The government argued that Murphy’s request for relief, which requests that the IRS notices of claim disallowance be ordered and adjudged as invalid, null, and void, is jurisdictionally barred by the Declaratory Judgment Act and the Anti-Injunction Act. The Declaratory Judgment Act states that, except with respect to Federal taxes, any court of the United States may declare the rights and other legal relations of any interested party. The reach of the Declaratory Judgment Act is coextensive with that of the Anti-Injunction Act, which prohibits suits to restrain the assessment or collection of any tax.
Request for Refund of 2021 Penalties: The government asserted that dismissing the refund claims for 2016 and 2017 would eliminate Ms. Murphy’s refund claim for the 2021 estimated tax penalty.

Court’s Findings

The court found that Ms. Murphy’s January 7, 2022 letter provided notice to the IRS that Ms. Murphy was asserting a right to a credit or refund on her 2016 Form 1041-A claim, provided legal grounds for the claim, and was in writing, and thus constituted a “duly filed” informal claim. The statute of limitations tolled at that time, and therefore, Ms. Murphy’s request for refund was brought within the time limit required by statute. The court concluded that it has jurisdiction to hear Ms. Murphy’s claim regarding the penalties and interest related to the 2016 Form 1041-A filing.
The court determined that Ms. Murphy sufficiently alleged that she reasonably relied on her accountant’s judgment as to which returns needed to be filed and how income needed to be allocated on the returns.
Given Ms. Murphy’s acknowledgement that she is not seeking declaratory relief, the government’s motion to dismiss was granted as to any request in the complaint for declaratory relief.
The motion to dismiss was granted as to Ms. Murphy’s claim regarding the 2021 penalties, without prejudice to Ms. Murphy refiling the claim after exhausting administrative remedies.

Ultimately, the government’s motion to dismiss was denied in part and granted in part. The motion to dismiss was granted as to the complaint’s prayer for declaratory relief and was granted without prejudice as to plaintiff’s claim for refund of the penalties assessed for the 2021 tax year. Otherwise, the motion to dismiss was denied.

Prepared with assistance from NotebookLM.