The Tax Court held that neither the substantial compliance nor the tacit consent doctrine excused a taxpayer's failure to sign a joint return.
Background
Bradley and Nancy Reifler were married in 1988. Over the years, Mr. Reifler generally handled their family financial and tax matters, including the preparation of income tax returns, and for the 2000 tax year he arranged for a CPA to prepare their joint return.
After the CPA prepared the return, he sent it to the couple. Mr. Reifler signed, but did not date, the original return and placed it in a bin where he usually placed documents that required Mrs. Reifler's signature. However, the next morning, before Mrs. Reifler signed the return, Mr. Reifler mailed the return to the IRS Service Center in Andover, Mass. According to Mr. Reifler, he did not check to see if his wife had signed the return before he sent it.
Sometime after the IRS received the original 2000 return, the Service returned it to the Reiflers. The Reiflers claimed that they received the original 2000 return with some red ink marks on it and date-stamped Oct. 15, 2001, but did not receive any attached correspondence. According to the Tax Court, standard IRS Service Center procedure would have been to stamp the return with a document locator number, to place a red "S" on the top left-hand corner of the first page, and to return it to the taxpayers, along with a checklist of potential return defects and a notice telling the taxpayers they forgot to sign their return.
On July 29, 2002, the IRS issued a taxpayer delinquency notice to the petitioners, informing them that the Service had not received their 2000 federal income tax return. On Aug. 25, 2002, after the Reiflers discussed the delinquency notice with their CPA, they signed a second Form 1040 and supporting schedules, dated Aug. 25, 2002, and sent them to the IRS (second 2000 return). Although the return was merely a copy of the original return, they did not include any correspondence with the second 2000 return explaining their position to the IRS. As a result, the IRS treated the second 2000 return as the petitioners' original federal income tax return for 2000 with a filing date of Sept. 2, 2002.
In April 2004, the IRS began auditing the Reiflers' 2000 to 2005 tax years. Beginning on July 1, 2005, the Reiflers signed a series of consents extending the assessment and collection limitation period for 2000 until June 30, 2010. On May 17, 2010, the IRS issued a notice of deficiency covering the Reiflers' 2000 tax year.
In response, the Reiflers petitioned the Tax Court, alleging that those consents were invalid because the Sec. 6501(a) period of limitation on assessment and collection for their 2000 federal income tax expired on Oct. 15, 2004, three years after they filed the initial 2000 return. The Reiflers argued that although Mrs. Reifler had not signed the original return they filed, it was valid under the substantial compliance doctrine because they substantially complied with the filing requirements or under the tacit consent doctrine because Mr. Reifler had signed the return and Mrs. Reifler consented to his filing a joint return for the couple.
The Tax Court's Decision
The Tax Court held that the initial return the Reiflers filed was invalid because it did not contain Mrs. Reifler's signature. The court found the substantial compliance and tacit consent doctrines did not waive or supplant the signature requirement "contained in the Code, the regulations, and almost a century of caselaw."
Substantial compliance doctrine: Under the substantial compliance doctrine, in certain instances, a return that is not perfect, but substantially complies with the return filing requirements, will be considered a valid return. In Beard, 82 T.C. 766 (1984), the Tax Court addressed what constitutes a valid return for purposes of the statute of limitation on assessments. The court set out four requirements that a return must meet to be sufficient to trigger the running of the statute of limitation. The Beard test includes four elements: (1) The return must have sufficient data to calculate tax liability; (2) the document must purport to be a return; (3) there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and (4) the taxpayer(s) must sign the return under penalties of perjury.
The Reiflers argued that under the substantial compliance doctrine, their original 2000 return was valid because it met all of the Beard test's requirements except that both taxpayers had not signed the return. The IRS contended that the return failed the Beard test because it did not separately meet all four elements of the test.
The Tax Court sided with the IRS, finding that the Beard test was not one test with four elements, such that a taxpayer could claim to have substantially complied under the test by satisfying some, but not all, of the elements. Rather, the court found that each element in the test was separate and distinct, and thus a taxpayer must meet each separately. The only way to comply with the signing requirement was for both Mr. and Mrs. Reifler to sign the return, and Mrs. Reifler had not signed it. In support of its position, the court cited a long list of cases in which courts had held that an unsigned return was invalid.
Tacit consent doctrine: With respect to the tacit consent doctrine, the Reiflers claimed that the courts had established in a long line of cases that a joint individual return filed with the signature of only one spouse is valid if both the husband and wife intended to file a joint return. Therefore, because Mr. Reifler had signed the original return, and Mrs. Reifler had stated in an affidavit that she acquiesced to the filing of the return, the return was valid under the tacit consent doctrine. The IRS countered that the doctrine is relevant only in determining whether spouses are jointly and severally liable for an income tax return that they intended to file jointly, and did not apply in the Reiflers' case.
In its opinion, the Tax Court first noted that courts generally apply this doctrine when one spouse signs a joint return for both spouses and it is later shown that the other spouse has tacitly consented to the joint return filing. In addition, it observed that in the cases cited by the Reiflers, the IRS had been asserting the doctrine against the taxpayers to assert joint and several liability on the basis that both spouses had purportedly signed the joint returns at issue, and thus the facts in those cases were distinguishable from those in the Reiflers' case.
With this in mind, the court reviewed the Reiflers' facts to see if they supported application of the doctrine. The court found that while Mrs. Reifler relied on her husband in tax matters and intended to file a joint return, there was no adequate explanation of why the couple's normal procedures for filing returns, which had worked well for them previously, had failed in 2000, or why Mr. Reifler did not check for the signature before filing the return. The court also found that their actions after they received the original 2000 return back from the IRS seemed inconsistent and illogical in light of their testimony that in October 2001 they desired and intended to file a joint return. Although there was some evidence that the couple intended to file a joint return, based on gaps in the record and their subsequent treatment of the original 2000 return, the court found that the evidence was insufficient to prove that the Reiflers intended to file a joint return. Thus, the tacit consent doctrine did not apply.
Reflections
On the issue of applying the tacit consent doctrine, the Tax Court leaves the door open, if only a little way. The main issue the court seemed to have with the Reiflers' attempt to apply the doctrine was that the IRS had rejected the original return. As the court stated, "Using the tacit consent doctrine in cases when a tax return is rejected by the Commissioner for lack of compliance with the most basic requirements would only create chaos."
According to the Tax Court, the taxpayers' contention that they intended to file a joint return was belied by their failure to immediately respond when they first received their 2000 return back from the IRS. They also did not help themselves in the court's eyes by, after the IRS had issued a notice of deficiency, providing the IRS with a copy of the 2000 return that had Mrs. Reifler's signature added and the service center's red "S" marking whited out. This indicated to the court that Mr. Reifler was aware of the defect in the original return.
Reifler, T.C. Memo. 2015-199
