A taxpayer's e-filing of a return without his IP PIN triggered the running of the Sec. 6501(a) statute-of-limitation period on assessment.
Background
Robin Fowler e-filed a 2013 Form 1040, U.S. Individual Income Tax Return, on Oct. 15, 2014 (Oct. 15 submission). He electronically signed (e-signed) a Form 8879, IRS e-file Signature Authorization, which authorized the return's preparer, a public accounting firm, to file a return on his behalf. A partner in the accounting firm e-signed the 2013 Form 1040 with a practitioner personal identification number (practitioner PIN) and transmitted it directly to the IRS on Oct. 15, 2014. The IRS received the return but rejected it. It sent the partner a rejection notice that listed code "IND-181," indicating a failure to provide a valid identity protection personal identification number (IP PIN) with an e-filed return was the reason for the rejection. The IRS's records showed that it had sent Fowler an IP PIN on Dec. 30, 2013, but Fowler claimed he had not received it at the time of the Oct. 15 submission.
The accounting firm then prepared a paper return for Fowler with the same information as the original e-filed return. Fowler signed the return using DocuSign. On Oct. 28, 2014, the accounting firm mailed the paper return to the IRS using certified mail with return receipt. Although Fowler's return receipt proved that the IRS had received the paper return, it sent Fowler a letter in December 2014 stating that it had not received the return.
The accounting firm e-filed another 2013 Form 1040 on April 30, 2015. The third return was identical to the first two returns, except that it included an IP PIN Fowler had obtained from the IRS sometime prior to the filing. The IRS accepted the return for processing.
The IRS later audited Fowler's 2013 return and issued a notice of deficiency for the 2013 tax year to him on April 5, 2018. Fowler filed a petition in Tax Court challenging the notice of deficiency.
In Tax Court, Fowler argued that the Oct. 15 submission of the return triggered the running of the Sec. 6501(a) statute-of-limitation period for assessment for his 2013 return. Therefore, the limitation period for that year had expired when the IRS issued the notice of deficiency over three years after that date on April 5, 2018. The IRS countered that Fowler's first two returns were not valid returns because they did not include the IP PIN, and, consequently, the limitation period did not begin running until Fowler electronically filed the third return with the IP PIN on April 30, 2015. As a result, the limitation period had not expired when the IRS issued the notice of deficiency.
The Tax Court's decision
The Tax Court held that the omission of the IP PIN from his Oct. 15 submission to the IRS did not prevent it from being a properly filed required return that started the running of the statute-of-limitation period. Consequently, the three-year period of limitation for Fowler's 2013 tax year had expired when the IRS issued the notice of deficiency on April 5, 2018.
Sec. 6501(a) generally requires that the IRS assess tax within three years after the taxpayer files 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 (Sec. 6501(b)). The filing of a return commences the running of the statute-of-limitation period if (1) the document that the taxpayer submitted was a required return, and (2) the taxpayer properly filed the return (Appleton, 140 T.C. 273 (2013)). The Tax Court found that both of these requirements had been met with respect to Fowler's Oct. 15 submission, so the statute of limitation for the 2013 tax year began running on that date.
Required return: The submission of a return will not start the running of the statute-of-limitation period unless it is the return required to be filed by the taxpayer. In determining if a return is a required return, the Tax Court applies the test from Beard, 82 T.C. 766 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986). Under the Beard test, (1) the document submitted must purport to be a return and provide sufficient data to calculate tax liability; (2) the taxpayer must make an honest and reasonable attempt to satisfy the requirements of the tax law; and (3) the taxpayer must execute the document under penalties of perjury.
The court easily found that the Oct. 15 submission met the first requirement because it included a 2013 Form 1040 and it included the information necessary to calculate the tax liability (i.e., Fowler's gross income, deductions, credits, and resulting net taxable income). In the court's view, the second requirement that Fowler make an honest and reasonable attempt to comply with the law was met because the submission included inputs for income, deductions, exemptions, and credits along with supporting documentation and schedules, so it was not a tax protester "zero return" that did not show an attempt to properly report income and deductions. The court found that though the return did not include the missing IP PIN, this did not make the return a tax protester-type return, particularly because the IRS did not explain why it automatically rejects an electronic return without an IP PIN but not a paper return without an IP PIN.
The Tax Court looked most closely at the third Beard requirement that the return be executed (i.e., signed) under penalties of perjury. The IRS argued that Fowler's failure to include an IP PIN in the Oct. 15 submission caused it to fail this requirement because the IP PIN was part of the signature requirement for Form 1040. The Tax Court, based on the regulations and the Form 1040 instructions, concluded the inclusion of the IP PIN was not necessary for Fowler's signature to be valid.
Regs. Sec. 1.6695-1(b)(2) requires a signing tax return preparer to "electronically sign the return in the manner prescribed by the Commissioner in forms, instructions, or other appropriate guidance." The instructions to the 2013 Form 1040 state that the taxpayer "must sign the return electronically using a personal identification number (PIN)," either a Self-Select PIN or a practitioner PIN (2013 Form 1040 instructions, p. 73). Fowler, relying on these instructions, had signed the return using a practitioner PIN.
The Tax Court could not find any IRS guidance characterizing an IP PIN as a signature. While the input line for the IP PIN is within the "Sign Here" section of the Form 1040 return, the court determined that this did not mean it was a required part of the signature under the Beard test. The court noted that it had previously held that not all the information requested in the "Sign Here" section (e.g., the taxpayer's daytime phone number) was required to be filled out for the taxpayer's signature to be valid. Because the form and its instructions did not specifically state that the IP PIN was part of the taxpayer's signature, the court found that it also was not required for a valid return signature. Because Fowler's Oct. 15 submission included a practitioner PIN, which along with a Self-Select PIN was identified in the 2013 Form 1040 instructions as an e-signature, the court concluded that it was properly executed under penalties of perjury.
Properly filed: Having found that Fowler's Oct. 15 submission met the Beard requirements to be a return, the Tax Court analyzed whether the return had been properly filed. The court explained that this was generally a question of whether the taxpayer's mode of filing complied with the prescribed filing requirements, not the content of the return filed. The court, citing a number of cases, stated that a return that meets the Beard test is properly filed upon delivery to the IRS, even if the IRS does not accept or process it.
Taking into account a Submission ID number the IRS assigned to the e-filed return, an affidavit from the accounting firm regarding the filing Fowler provided, and, more significantly, the IRS's acknowledgment in its cross-motion for summary judgment that Fowler submitted the return on Oct. 15, 2014, the Tax Court concluded that there was no genuine dispute that the 2013 return Fowler submitted on that date had been properly delivered to the IRS. Because whether an IP PIN was included within the document submitted related to the content of the document and not its mode of filing, the court found that the return had been properly filed.
Reflections
In a footnote, the Tax Court stated explicitly that it was not passing judgment on whether the IRS could make the IP PIN part of the e-filing signature requirement. The court in this case relied heavily upon the Form 1040 instructions in determining that the IP PIN was not required. Presumably, the court would come to a different conclusion for a future year if the IRS changes the instructions for that year to make the IP PIN part of the e-file signature requirement.
Fowler, 155 T.C. No. 7 (2020)
