The Tax Court held that a joint federal income tax return that was not signed by one of the spouses was an invalid tax return because the signatures of both spouses were required to indicate that each had certified that all statements in the return were made under the penalty of perjury. The court also held that the couple were subject to the penalty for failure to file a timely tax return because their failure to comply with the filing requirements was due to the lack of ordinary business care and prudence.
Facts: Bradley and Nancy Reifler had their 2000 joint federal income tax return prepared by a CPA. After receiving the return, Bradley Reifler signed it and took it home to have his wife sign it but mailed it to the IRS without her signature. The IRS mailed the return back to the taxpayers. In such cases, IRS procedures require the Service to notify the taxpayer why a return has been sent back, what action the taxpayer needs to take, and the deadline for the resubmission of the return. The taxpayers stated they received a date-stamped original 2000 return with some red ink marks on it but claimed that no correspondence was attached.
They did not send the original 2000 return back to the IRS. In July 2002, they received a deficiency notice from the IRS because it had not received the taxpayers' 2000 return. In August 2002, the taxpayers signed and sent a second 2000 Form 1040, U.S. Individual Income Tax Return, claiming it was a copy of the original return. The IRS treated the return as filed on Sept. 2, 2002. In 2010, the IRS issued another notice of deficiency to the taxpayers for tax years 2000 through 2005. The amounts were settled between the parties, except for an addition to tax of $905,547 assessed for failure to file a timely 2000 tax return. The taxpayers petitioned the Tax Court for relief.
Issues: Under Sec. 6651(a)(1), an addition to tax is assessed for the failure to timely file a tax return unless the failure is due to reasonable cause and not because of willful neglect. A timely return must be a valid return that is signed by both spouses in the case of a joint return. Under the substantial compliance doctrine, a tax return that is imperfect can be valid. In Beard, 82 T.C. 766 (1984), the Tax Court listed four elements of a valid tax return: (1) It must contain sufficient information to calculate the liability; (2) the document must purport to be a return; (3) the taxpayers must have made an honest and reasonable attempt to comply with the law; and (4) the return must be executed under the penalties of perjury. In cases where one spouse signs for both spouses and it is later shown that the other spouse had tacitly agreed to file a joint return, the courts have found that a valid joint return was filed (the tacit consent doctrine).
The taxpayers argued that their return substantially complied with all filing requirements and therefore was valid under the Beard test, since the only omission was the wife's signature. They also argued that their original 2000 return was valid under the tacit consent doctrine because they intended to file a joint tax return for that year.
Holding: The court rejected both arguments. It held that the return did not substantially comply with tax law requirements because both spouses needed to sign the return under the penalty of perjury, a specific requirement under the Beard test. The court added, "The substantial compliance doctrine is not intended and should not be used to justify a failure to comply with simple and clear requirements."
The court also found that the tacit consent doctrine did not apply because it is used to determine joint and several liability for a joint return when one spouse signs for both spouses, not when there is no signature for one of the spouses. According to the court, the doctrine should not be extended to returns rejected by the IRS for failure to satisfy a basic requirement, such as the missing signature of a spouse.
After the court found that the original return was not valid, it could find no evidence that the taxpayer's failure to file was due to reasonable cause. The taxpayers had never previously had a return sent back to them by the IRS and, according to the court, they failed to exercise ordinary business care and prudence when they did not attempt to find out why the IRS had sent this return back to them.
- Reifler, T.C. Memo. 2015-199
—By Charles J. Reichert, CPA, instructor of accounting, University of Minnesota—Duluth.