A married couple who filed tax returns listing all income and tax due as “zero” were denied refunds in a decision by the U.S. Court of Appeals for the Federal Circuit ( Waltner, No. 10-CV-225 (Fed. Cir. 4/19/12)). The court dismissed the couple’s tax refund suit for lack of jurisdiction, holding that their returns as filed did not constitute proper refund claims, affirming a decision by the Court of Federal Claims.
After originally filing returns that reported taxable income, the taxpayers filed amended returns for 2004 through 2006 and original and amended returns for 2007 and 2008 in which they listed all of their income items and taxes owed as zero. They included amended Forms 1099 with zero amounts. They also submitted Forms 4852, Substitute for Form W-2, for each year, reporting the husband’s income as zero and noting that he did not attempt to get a corrected Form W-2 from his employer because, as he noted on the forms, “most companies refuse to issue forms correctly listing payments as ‘wages’ as defined in [Secs.] 3401(a) and 3121(a).”
For 2005 and 2006, the couple in addition filed a Form 8082, Notice of Inconsistent Treatment of Administrative Adjustment Request, lowering dividends reported from a trust to zero because the trust reporting the dividends “is not a ‘Trade or Business’ within the meaning of” Sec. 7701(a)(26).
The taxpayers sought a refund for the various tax years, alleging that the all-zero returns proved that they had no tax liability for those years and were due a refund for taxes they paid in those years.
According to the court, a taxpayer cannot file a suit seeking a refund of tax until a claim for refund or credit has been duly filed with the IRS. This requirement is a jurisdictional one under Sec. 7422(a). A properly executed original or amended income tax return can constitute a claim for refund. To be considered properly executed, the return must contain sufficient data to allow the calculation of tax and show an honest and genuine endeavor to satisfy the law.
Although this is the first case in which the Federal Circuit addressed the issue, the court looked to a long line of cases in other circuits that concluded that returns with zeros in place of reportable income are not valid returns. Thus, the couple had not submitted valid claims for refund, and the court lacked jurisdiction to hear their suit.
—Sally P. Schreiber (
sschreiber@aicpa.org
) is a JofA senior editor.
