Fowler v. Commissioner
155 T.C. No. 7

On September 9, 2020, the Tax Court issued its opinion in Fowler v. Commissioner (155 T.C. No. 7). The primary issue presented in Fowler v. Commissioner was whether the electronic filing of a tax return which was rejected by the IRS’s software for failure to include and Identity Protection Personal Identification Number (IP PIN) triggered the three-year limitations period to assess tax pursuant to IRC § 6501(a).

Background to Fowler v. Commissioner

The petitioner timely applied for an extension to file his 2013 return until October 15, 2014. The petitioner submitted his 2013 Form 1042 the IRS on October 15, 2014; October 28, 2014; and April 30, 2015. Each 2013 Form 1040 contain the same information to calculate tax liability; however, the IRS accepted only the final submission.

The IRS rejected the first submission which was e-filed for failure to provide a valid Identity Protection Personal Identification Number (IP PIN) with the e-filed return. The petitioner’s CPA was an Electronic Return Originator (ERO). The CPA e-filed the 2013 Form 1040 on behalf of the petitioner on April 30, 2015, with a valid IP PIN. With the exception of the IP PIN, the tax information on the April 30 submission was identical to the information in the first submission. The IRS issued a notice of deficiency for the 2013 tax year to the petitioner on April 5, 2018. The petitioner filed a petition with the Tax Court challenging the notice of deficiency raising the statute of limitations as an affirmative defense.

The Statute of Limitations on Assessment

IRC § 6501(a) generally requires that the IRS assess tax within three years after the taxpayer filed his or her return. This three-year period begins on the due date of the return if it is timely filed or on the actual filing date if the return is filed late. See IRC § 6501(b)(1). The statute of limitations on assessment is an almost indispensable element of fairness as well as of practical administration of an income tax policy. Rothensies v. Elec. Storage Battery Co., 329 U.S. 296, 301 (1946). It assures taxpayers who file honest returns that after that period their tax liabilities will not be reopened. Mabel Elevator Co. v. Commissioner, 2 B.T.A. 517, 519 (1925).

The filing of a return commences the running of the limitations period if (1) the document that the taxpayer submitted was a required return, and (2) the taxpayer properly filed the return. Appleton v. Commissioner, 140 T.C. 273, 284 (2013); see also Vento v. Commissioner, 152 T.C. 1, 15 (2019) (Thornton, J., concurring) (noting that whether a return was properly filed is a separate question from whether the document was a return in the first instance), supplementing 147 T.C. 198 (2016). A taxpayer cannot trigger the statute of limitations by properly filing a document that lacks sufficient information to calculate tax liability or by submitting a required return to the wrong IRS Service Center. See, e.g., Winnett v. Commissioner, 96 T.C. 802, 808 (1991) (wrong service center); Houston v. Commissioner, 38 T.C. 486, 491 (1962) (finding that a letter listing total income, but omitting other items necessary to calculate tax liability, was not a section 6501(a) “return”).

A “Required Return”

IRC § 6501(a) explains that “the term ‘return’ means the return required to be filed by the taxpayer”. Neither the statute nor the regulations thereunder expand on this definition. Given the lack of regulations, the Tax Court generally relies on the test in Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff’d, 793 F.2d 139 (6th Cir. 1986), to determine whether a document constitutes a return. See Hulett v. Commissioner, 150 T.C. 60, 81 (2018). The Beard test requires that: (1) the document purport to be a return and provide sufficient data to calculate tax liability, (2) the taxpayer make an honest and reasonable attempt to satisfy the requirements of the tax law, and (3) the taxpayer execute the document under penalties of perjury.

Because the October 15 submission was actually included on a 2013 form 1040, and it reported the petitioner’s gross income, deductions, credits, and resulting net taxable income, it passes the first prong of the Beard test. Importantly, a taxpayer need not file a perfect return to start the limitations period. Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 180 (1934). Instead, the return must only appear reasonable on its face. Hulett, 150 T.C. at 89 (citing Colsen v. United States, 446 F.3d 836, 840 (8th Cir. 2006)). Even a fraudulent return may satisfy this requirement if it appears genuine on its face. Badaracco v. Commissioner, 464 U.S. 386, 396-397 (1984) (finding that a taxpayer’s original and fraudulent returns were still “returns”).

The Tax Court found that the October 15 submission appeared to be an honest and reasonable attempt to comply with the tax laws. The submission included inputs for income, deductions, exemptions, and credits along with supporting documentation and schedules. Indeed, the only difference between the rejected submission in the accepted submission was the IP PIN. Therefore, the Tax Court found that the October 15 submission satisfy the second prong of the Beard test.

The final requirement under the Beard test, which echoes IRC § 6061 and IRC § 6065, is that the taxpayer execute the document under penalties of perjury. Despite the authority delegated in IRC § 6061, there is little regulatory guidance as to what constitutes a valid signature. Indeed, Treas. Reg. § 1.6061-1(a) provides only that each individual “shall sign” his income tax return. The Tax Court found no IRS guidance characterizing and IP PIN as a signature, and, therefore, because the return was otherwise properly signed, the return met the third prong of the Beard test. See Appleton v. Commissioner, 140 T.C. 273, 287 & n.18 (2013) (finding that taxpayer may rely on an explicit instruction to Form 1040 that bears on the IRC § 6501(a) statute of limitations if a meticulous taxpayer would not find conflicting instructions in other IRS guidance). Just as taxpayers must comply with instructions referenced on IRS forms, see Estate of Merwin v. Commissioner, 95 T.C. 168, 180 (1990), the IRS cannot disavow the 2013 Form 1040 instructions to accommodate its litigation stance. See Wilkes v. United States, 50 F. Supp. 2d 1281, 1287 (M.D. Fla. 1999), aff’d, 210 F.3d 394 (11th Cir. 2000).

An IP PIN does not become part of the signature requirement simply because IRS’s software will reject an e-filed return without it. Furthermore, the Modernized e-File (MeF) system, which the IRS uses to process e-filed returns, rejects returns for numerous errors that may not cause a return to fail the Beard test. None of the authorities the IRS cites makes the IP PIN part of the prescribed signature method. The Tax Court, therefore, held that an IP PIN is not required to start the limitations period under IRC § 6501(a).

Properly Filed

A “return” by itself does not trigger the statute of limitations; the return must be “properly filed”. Appleton, 140 T.C. at 284. The filing requirement is not premised on whether the IRS is informed; i.e., it is not a question of what the IRS received and understood. Vento, 152 T.C. at 15-16 (Thornton, J., concurring). Instead, a filing issue is generally a question of whether the taxpayer’s mode of filing complied with the prescribed filing requirements. Id.

In general, a return is “filed” when it has been physically delivered to the correct IRS office. See IRC § 7502 (implicitly equating filing with delivery); Allnutt v. Commissioner, 523 F.3d 406, 412-413 (4th Cir. 2008), aff’g T.C. Memo. 2002-311; Miller v. United States, 784 F.2d 728, 730 (6th Cir. 1986). This follows from the requirement in IRC § 6501(a) that the return “be filed by the taxpayer.” A taxpayer can deliver a return, e.g., through the USPS or electronically, but a taxpayer cannot accept a return or process a return. In Blount v. Commissioner, 86 T.C. 383, 387-388 (1986), the Tax Court held that a document that qualifies as a return under the Beard test is filed upon delivery, even if the IRS does not accept or process the document.

Given that the filing inquiry concerns not “what the IRS received and understood” but only the “mode of filing”, see Vento, 152 T.C. at 15-16 (Thornton, J., concurring), the Tax Court found that the return was delivered to the IRS, and that the petitioner “properly filed” a return.

(155 T.C. No. 7) Fowler v. Commissioner

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