Joint return not valid where one spouse filed separate return

The Tax Court held that a joint return with only one spouse’s signature was not valid because, although the signing spouse claimed the nonsigning spouse was disabled and unable to file a return, the signing spouse did not meet the requirements to be the nonsigning spouse’s duly authorized agent for purposes of the return, and the evidence showed the nonsigning spouse did not intend to file a joint return.

Background

Peter Moss, who in 2009 lived in Connecticut, timely filed a 2008 joint income tax return in April 2009. On the tax return, he claimed married-filing-jointly status, personal exemptions for himself and his wife, and an $823 overpayment from their previous year’s joint income tax return. His wife, however, refused to sign the 2008 return. Moss nevertheless filed the return and attached to it a letter stating that his wife was seriously mentally ill, that the IRS should disregard all information she sent, and that the return included her income for 2008 as well as his. However, Moss did not attach any power of attorney that would authorize him to act on behalf of his wife, and Mrs. Moss never submitted to the IRS any consent for Mr. Moss to file the 2008 return for her.

Mrs. Moss filed a separate return in April 2009, apparently because she believed she was entitled to a theft loss deduction. Mr. Moss believed that his wife’s mental illness, for which she had been hospitalized in 2005 and 2006, left her highly suggestible to news programs covering the “Madoff fraud” and led to the delusion that she had lost $350,000 in 2008 in that fraud.

In fact, she had no investments affected by the Madoff Ponzi scheme. When he filed the 2008 return, Mr. Moss believed he served a guardianship function for his wife because she was required to live with him as a condition of her hospital release in 2006. However, Mr. Moss had not sought official status as a conservator or guardian of his wife and had not procured a power of attorney from her. Only in August 2013 did a Connecticut probate court place Mrs. Moss into a conservatorship, appointing her daughters as conservators.

In her separately filed return, Mrs. Moss checked the “Married filing separately” box. Among other peculiarities, the return included a Form 4684, Casualties and Thefts, showing $350,000 in losses that Mrs. Moss reported on her Schedule A, Itemized Deductions, but she claimed only $9,000 in itemized deductions. The filing of a separate return was a significant departure for Mrs. Moss; the 2008 tax year was the only instance, from 1966 to 2011, in which she filed a separate return. The IRS accepted Mrs. Moss’s return but did not accept most of the figures she reported on it, assessing her $738 in tax and recognizing no credits or payments. After receiving no payments for the unpaid liability, the IRS levied on Mrs. Moss’s Social Security payments to satisfy her balance.

In addition, in December 2011, the IRS issued a notice of deficiency to Mr. Moss for 2008 based on the return he had filed, changing his filing status from married filing jointly to married filing separately. The IRS also made various changes to the return and removed one exemption from it; however, it did not remove Mrs. Moss’s income from the total gross income shown on the return.

Mr. Moss objected to the IRS’s determination and filed a petition with the Tax Court. In his petition, he reiterated the information about his wife’s mental condition and contended that the IRS should not have accepted the return his wife filed because it was on its face delusional. He also objected to the IRS’s curious move of denying an exemption for his wife on the return while including her income on it. The IRS eventually conceded that it must reduce the deficiency amount in the notice to reflect the removal of all income attributable to Mrs. Moss.

Mr. Moss was not satisfied with this concession and continued to press his argument in Tax Court that his wife’s 2008 return was invalid and that the IRS should not have accepted it. He contended that the proper remedy was for the Tax Court to invalidate Mrs. Moss’s 2008 return, accept the original return showing married-filing-jointly status, and determine that there was no deficiency.

The Tax Court’s decision

The Tax Court held that the return filed by Mrs. Moss was valid and that the joint return filed by Mr. Moss for himself and his wife was not valid. The court found that the return filed by Mr. Moss was not valid because Mrs. Moss did not sign it, and neither of the two exceptions to the signature requirement applied to the Mosses’ circumstances.

As the court explained, because Mrs. Moss did not sign the return in issue, it did not comply with the requirements for a joint return under Regs. Sec. 1.6013-1(a)(2). However, the court also noted that there are two exceptions under which a return may be accepted as jointly filed even though it is signed only by one spouse, the agency exception and the consent exception.

Under the agency exception, the duly authorized agent of a person may make a return when the person is unable to make a return. However, even when the person for whom a return is being filed is a disabled spouse, the regulations require the person who is claiming to be the duly authorized agent to include with the return (1) Form 2848, Power of Attorney and Declaration of Representative, or a power of attorney authorizing the agent to represent the taxpayer in making, executing, or filing the return; (2) a statement signed by the spouse who is signing the return confirming that the incapacitated spouse consents to the signing of the return; or (3) a request for permission from, and determination made by, the appropriate IRS district director that good cause exists for permitting an agent to submit the return (Regs. Sec. 1.6012-1(a)(5)).

The Tax Court found that Mr. Moss had failed to prove that his wife, when he filed the 2008 joint return, was unable to file a return and, if she was, that he had not met any of the requirements under Regs. Sec. 1.6012-1(a)(5). Mr. Moss claimed his wife could not file a return at that time because of her mental illness, but the court found, based on Connecticut law, that a person’s previous commitment to a hospital and a spouse’s assertion of mental illness are not sufficient to invalidate an individual’s right to file his or her own return. Furthermore, the conservatorship order issued over four years after Mr. Moss filed the return did not satisfy his burden of proving that his wife was incapable of filing her own return in April 2009. In addition, the court determined that even if Mrs. Moss had been unable to file her return, Mr. Moss failed to show that he met the requirements under Regs. Sec. 1.6012-1(a)(5) to be her duly authorized agent for filing the return.

Under the consent exception, married taxpayers have been found to have filed a joint return, even when one of the taxpayers does not sign the return, if other evidence shows that the taxpayers intended to file a joint return. In Strong, T.C. Memo. 2001-103, the Tax Court found this intent to exist where the evidence showed a history of a husband’s signing a return for his wife, his wife provided him her information to prepare the return, and his wife did not file a separate return until years after the husband filed the alleged joint return. Despite the Mosses’ having a long history of filing jointly, though, the Tax Court found that evidence showed that in 2008 Mrs. Moss did not intend to file a joint return, noting that Mrs. Moss had refused to sign the joint return that Mr. Moss filed.

Reflections

As this case shows, a court in a tax case will not just accept a taxpayer’s unsubstantiated claim that his or her spouse is incompetent or that the taxpayer is authorized to act on the spouse’s behalf. This may come as a surprise to many clients who live with the burden of a spouse who is mentally ill and to whom it is obvious that they must act on the spouse’s behalf.

Moss, T.C. Memo. 2017-30