SWAN, Circuit Judge.
The taxpayer is a personal holding company. The Commissioner determined deficiencies in personal holding company surtaxes for the years 1941 and 1942 and added thereto a 25% penalty, pursuant to § 291 of the Internal Revenue Code, for petitioner's failure to file personal holding company returns for those years. The sole question presented to the Tax Court and likewise here is whether the taxpayer's failure to file personal holding company returns for the years in suit was "due to reasonable cause and not due to willful neglect".
"Reasonable cause" has been defined by the Regulations to mean that the taxpayer exercised ordinary business care and prudence. Treas.Reg. 103, § 19.291-1; see Southeastern Finance Co. v. Commissioner, 5 Cir., 153 F.2d 205; Girard Inv. Co. v. Commissioner, 3 Cir., 122 F.2d 843, 848, certiorari denied 314 U.S. 699, 62 S.Ct. 479, 86 L.Ed. 559, citing Klein, Federal Income Taxation 1674. In the case at bar Mr. Sprague, the taxpayer's secretary-treasurer, requested a certified public accountant, Mr. Wolcott, who was competent to advise on tax matters, to prepare the proper corporate tax returns for the years 1941 and 1942. Sprague fully disclosed to Wolcott all necessary information about the corporation and Wolcott knew that the taxpayer was a personal holding company but "through inadvertence" did not inform Sprague of this fact nor submit to him a
With this conclusion we disagree. When a corporate taxpayer selects a competent tax expert, supplies him with all necessary information, and requests him to prepare proper tax returns, we think the taxpayer has done all that ordinary business care and prudence can reasonably demand. Sprague had not "awaited passively for such tax advice" as Wolcott "might volunteer to give"; he affirmatively requested the preparation by his consultant of proper returns.
The respondent contends that where all responsibility for the preparation of tax returns is delegated to an agent, the taxpayer should be held to accept its agent's efforts cum onere and be chargeable with his negligence. That was the rationale suggested by this court in Berlin v. Commissioner, 59 F.2d 996, certiorari denied 287 U.S. 642, 53 S.Ct. 90, 77 L.Ed. 555. Further reflection convinces us that that proposition is not sound. The standard of care imposed by section 291 is personal to the taxpayer. To impute to the taxpayer the mistakes of his consultant would be to penalize him for consulting an expert; for if he must take the benefit of his counsel's or accountant's advice cum onere, then he must be held to a standard of care which is not his own and one which, in most cases, would be far higher than that exacted of a layman. The cases which hold that advice sought and received in good faith from a competent adviser constitutes reasonable cause for failure to file the required return are inconsistent with the cum onere doctrine suggested in the Berlin case.
In Paymer v. Commissioner, 2 Cir., 150 F.2d 334, 337 we said that reasonable cause was a question of fact and "therefore presents no reviewable issue." This abbreviated statement does not state the whole principle, which is better expounded in Hatfried, Inc. v. Commissioner, 3 Cir., 162 F.2d 628,
"(a) In case of any failure to make and file return required by this chapter, within the time prescribed by law or prescribed by the Commissioner in pursuance of law, unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the tax: * * * not exceeding 25 per centum in the aggregate."