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By: Lee Whatling
The IRS’ software automatically rejects e-filed tax returns that do not meet certain criteria. Paper tax returns are generally not subject to the same treatment. This disparity came to a head in Fowler v. Commissioner, 155 T.C. No. 7 (2020), in which the petitioner’s timely-e-filed tax return was automatically rejected by the IRS’ software for the failure to provide a valid Identity Protection Personal Identification Number (“IP PIN”).
On October 15, 2014, a CPA firm timely e-filed a 2013 Form 1040 on behalf of their client, Mr. Fowler, signing the document using a Practitioner PIN. The same day, the IRS rejected the tax return for failure to provide a valid IP PIN. Since Mr. Fowler was a victim of identity theft, he was issued an IP PIN to confirm his identity when filing with the IRS. Following a second attempt to file the return, which was inexplicably not received by the IRS through certified mail, Mr. Fowler’s 2013 tax return was accepted by the IRS’ software on April 30, 2015. Almost three years later, on April 5, 2018, the IRS sent Mr. Fowler a notice of deficiency for the 2013 tax year. Mr. Fowler subsequently petitioned the United States Tax Court, arguing that the IRS’ assessment of his 2013 taxes was barred by the three-year statute of limitations, as prescribed in 26 U.S.C. § 6501.
The Court, on cross motions for summary judgment, agreed, finding that Mr. Fowler’s first attempt to file his 2013 return on October 15, 2014, was a properly filed required return, thus triggering the three-year statute of limitations. The unanimous court, applying the three-prong test in Beard v. Commissioner, 82 T.C. 766 (1984), aff’d, 793 F.2d 139 (6th Cir. 1986), found that Mr. Fowler’s October 2014 return (1) purported to be a return and provided sufficient information to calculate tax liability, (2) constituted an honest and reasonable attempt to comply with the requirements of the tax law, and (3) was executed under penalties of perjury.
The latter finding proved the most contentious, with the IRS arguing that Mr. Fowler’s omission of an IP PIN failed the signature requirement. The Court, however, found the instructions included with the 2013 Form 1040 controlling, noting that there was no IRS guidance characterizing an IP PIN as a signature. The 2013 Form 1040 instructions provided only that “a personal identification number (PIN),” either a Self-Select PIN or a Practitioner PIN, would constitute a valid e-signature. Therefore, as Mr. Fowler’s 2013 return was signed with a valid Practitioner PIN, the signature requirement was satisfied. The Court emphasized that taxpayers are entitled to rely on the instructions referenced on IRS forms and that the IRS “cannot disavow” those instructions when convenient to their litigation position. The Court then found that there was no genuine dispute that Mr. Fowler’s return was properly filed, since it was submitted and received by the IRS as an e-filed return. See Appleton v. Commissioner, 140 T.C. 273 (2013). Accordingly, as the 2013 return constituted a “properly filed” “required return,” the Court granted summary judgment in favor of Mr. Fowler, finding that the return triggered the three-year limitations period.
Although Fowler clarifies the requirements for a required return under the Beard test, a word of caution: The Court did not hold that an IP PIN would never constitute a valid signature. Under 26 U.S.C. § 6061, the Secretary has congressionally-granted authority to prescribe forms or regulations that define the signature method for a tax return and to develop procedures for the acceptance of signatures in digital or other electronic form. Practitioners, therefore, must keep abreast of any changes in the relevant rules and regulations concerning the requirements for a valid e-signature, as well as review the instructions to the relevant form for the relevant year. Failure to do so could result in an unexpected tax assessment for the client.
If you have any questions or would like more information, please contact Lee Whatling at firstname.lastname@example.org, or any other member of our Accountants Liability Practice Group, a list of which can be found at stage.fmglaw.com.