The Tax Court considered the question in the case of Fowler v. Commissioner,[1] 155 TC No. 7 of the impact of a taxpayer electronically filing a tax return without a required IP PIN on the running of the statute of limitations on the time for the IRS to assess tax.

The taxpayer in this case had his identity compromised in 2013 and the IRS claims the agency sent the taxpayer an IP PIN in late December 2013. However, the taxpayer claims that he did not receive the IP PIN by the October 15, 2014 date on which he timely attempted to file his 2013 income tax return.[2]

The Court describes the taxpayer’s first attempt to file his 2013 return as follows:

Petitioner efiled the 2013 Form 1040 on October 15, 2014 (October 15 submission). Petitioner electronically signed (e-signed) Form 8879, IRS e-file Signature Authorization, to authorize Bennett Thrasher, LLP, a certified public accountancy firm, to file a return on his behalf in its capacity as an electronic return originator (ERO). Jeffrey J. Call, a partner at Bennett Thrasher, e-signed the 2013 Form 1040 with a Practitioner Personal Identification Number (PIN) and transmitted it directly to respondent on October 15, 2014. Mr. Call received a Submission ID, a “globally unique 20 digit number assigned to electronically filed tax returns”. Pub. 1345, at 56. Respondent’s software received the October 15 submission that same day and sent Mr. Call a rejection notice, citing code “IND181” for failure to provide a valid Identity Protection Personal Identification Number (IP PIN) with the efiled return.[3]

The taxpayer and preparer attempted to solve the issue by sending in a paper copy of the return less than two weeks after the rejection:

Petitioner again submitted a 2013 Form 1040 on October 28, 2014 (October 28 submission). Mr. Call prepared a paper 2013 Form 1040 with the same information as the October 15 submission, and petitioner used DocuSign to sign the jurat. On October 28, 2014, Bennett Thrasher mailed the 2013 Form 1040 with petitioner’s DocuSign signature stamp to the IRS Service Center in Austin, Texas, via U.S. Postal Service (USPS) Certified Mail with Return Receipt. The USPS delivered the October 28 submission to the IRS on October 30, 2014. The return receipt confirms that an IRS employee, Sandra Douds, signed for the package. Petitioner received a letter in December 2014 notifying him that the IRS had not received his 2013 return.[4]

Finally, in 2015 the taxpayer, having obtained a new IP PIN, did manage to electronically file his 2013 tax return with the IRS in April of 2015:

Mr. Call efiled a 2013 Form 1040 on behalf of petitioner a third time on April 30, 2015 (April 30 submission). Petitioner obtained an IP PIN from the IRS on or before April 30, 2015, and it was included in the April 30 submission. With the exception of the IP PIN, the tax information in the April 30 submission was identical to the information in the first and second submissions. The IRS’ software reviewed and accepted the April 30 submission on the same day.[5]

The IRS issued a notice of deficiency to the taxpayer on April 5, 2018, less than three years after the date of the successful electronic filing, but more than three years after the date the taxpayer had first attempted to electronically file the return and after the taxpayer had followed up with a paper tax return containing the same information.[6]

The taxpayer argued that the IRS was too late—the statute of limitations for the agency to assess tax against the taxpayer expired three years after the return had been filed and thus the assessment after that date was not valid under IRC §6501. The taxpayer argued that either the statute began on October 15, 2014 when the first electronically filed return was submitted or, at the worst, on October 30, 2014 when the agency received the paper return filed in response to the rejection of the electronically filed return.

The IRS argued that the rejected return did not count as a return for starting the tolling of the statute as the IP PIN is a required part of the signature[7] and that the second return, being signed by an unauthorized means, was not a valid return[8]—thus, the statute did not begin to run until April 30, 2015 when an electronic return was submitted with the IP PIN.

The Tax Court noted that a taxpayer’s delivery of a document purporting to be a return starts the statute of limitations under IRC §6501 if:

The document filed purports to be a return and provides sufficient data to calculate the tax liability;
The taxpayer made an honest and reasonable attempt to satisfy the requirements of the tax law; and
The taxpayer executes the document under penalty of perjury.[9]

The Tax Court quickly concludes that the taxpayer had met the first two standards—the taxpayer had submitted a return with sufficient information to calculate the tax and had made an honest and reasonable attempt to satisfy the requirements of the law.[10]

The true dispute arose under the third standard—did the taxpayer properly execute the document under penalties of perjury. The IRS asserted that only on the third attempt did the agency receive a return that was properly signed, since a proper signature for an electronic return requires an IP PIN if the taxpayer has had one issued.

The Tax Court disagreed that the IP PIN makes up part of the signature:

Respondent argues that the October 15 submission failed to satisfy the signature requirement because it did not include an IP PIN. This argument does not persuade us because the IP PIN is separate from the signature guidance the Secretary has issued.[11]

The Tax Court looks to IRS guidance and finds nowhere does the agency inform taxpayers or EROs that the IP PIN is part of the signature:

Despite the authority delegated in section 6061, there is little regulatory guidance as to what constitutes a valid signature. Section 1.6061-1(a), Income Tax Regs., provides only that each individual “shall sign” his income tax return. Section 1.6695-1(b)(2), Income Tax Regs., directs a signing tax return preparer to “electronically sign the return in the manner prescribed by the Commissioner in forms, instructions, or other appropriate guidance.” We therefore look to the instructions to the 2013 Form 1040 itself. Under the heading “IRS e-file: Electronic Return Signatures!”, the instructions 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, at 73 (emphasis added). Here, Mr. Call included a Practitioner PIN on petitioner’s efiled return in accordance with the instructions.[12]

The Court goes on to note:

In this case, whereas the 2013 Form 1040 Instructions definitively identify the Self-Select PIN and the Practitioner PIN as the means of signing an electronic return, they provide no explicit indication that the IP PIN is part of the signature. See 2013 Form 1040 Instructions, at 73; see also IRS Publication 4164, Modernized e-File (MeF) Guide for Software Developers and Transmitters: Processing Year 2014 (Rev. 12-2013), at 16-17, 177-187 (hereinafter Pub. 4164) (addressing signature method and IP PIN in different sections and giving no indication that IP PIN is part of signature requirement); IRS Publication 17, Your Federal Income Tax for Individuals (Nov. 26, 2013), at 8-9 (same).[13]

Some may be concerned because the IP PIN box does appear near the signature line on the printed version of the Form 1040, but the Court didn’t find that clearly indicated the IP PIN was a required part of the signature:

The IP PIN appears within the “Sign Here” section of the 2013 Form 1040 itself, but so do other elements of the return that are not fundamental to a Beard signature. See, e.g., Hulett v. Commissioner, 150 T.C. at 68 (finding a return validly executed even though it omits taxpayers’ daytime phone number, which is requested in the “Sign Here” section); Estate of Temple v. Commissioner, 67 T.C. 143, 164 (1976) (finding the absence of one spouse’s signature on 1966 Form 1040 does not itself prevent return from being joint return, even though the 1966 Form 1040, like the 2013 Form 1040, provides in the “Sign Here” section that both spouses must sign a joint return).[14]

The Court concludes the taxpayer justifiably relied on the IRS instructions in signing the form, and that the IRS cannot now claim reliance on its own documents wasn’t justified.[15]

The IRS did refer to the Internal Revenue Manual to justify its position, noting that it provides that if an electronic return is filed with a missing or incorrect IP PIN the return will be rejected, but the Court states “[a]n IP PIN does not become part of the signature requirement simply because respondent’s software will reject an efiled return without it.” The Court goes on to note that the Modernized e-File (MeF) system rejects returns for a number of errors that won’t cause the return to fail to meet the three pronged test for beginning the running of the statute.[16]

The Court also rejects the IRS position that the IP PIN is needed to authenticate the return—that is, be sure the person claiming to sign the return is really the taxpayer. The Court notes the IRS’s own internal guidance states that an e-signature may not itself be sufficient to authenticate a return. As well, since the taxpayer filed via an ERO, the ERO is directed to verify the taxpayer’s identity, causing the Court to observe that “[i]t is not obvious to us why this requirement does not make the IP PIN superfluous in petitioner’s case.’[17]

The court notes that a return must also be “properly filed” to start the running of the statute—did the taxpayer’s method of filing comply with the IRS’s prescribed filing requirements.[18] But the Court did not agree with the IRS’s view that failing to include the IP PIN violated this requirement, finding a return is filed when it is physically delivered to the proper IRS office—and that delivery can be by electronic filing.[19]

We find there is no genuine dispute that petitioner delivered the October 15 submission to respondent. Petitioner submitted with his motion an affidavit signed by Jeffrey Call, who stated that he submitted a 2013 Form 1040 to respondent on behalf of petitioner. See Caulkins v. Commissioner, T.C. Memo. 1984-504, 48 T.C.M. (CCH) 1182, 1186 (1984) (“[F]undamental agency law provides that the actions of the tax preparer (agent) are imputed to the taxpayer (principal).”). Petitioner also provided Bennett Thrasher’s transmission log, which included the 20-digit Submission ID given to an efiler after submitting a return. Most significantly, respondent acknowledges that petitioner submitted a return on October 15, 2014, when he states in his response to petitioner’s cross-motion for summary judgment that petitioner “first attempted to e-file his 2013 income tax return on October 15, 2014, but his e-filing attempt was unsuccessful because he failed to include his IP PIN on the return.”[20]

The Court concludes:

Where a taxpayer properly files a required return, the taxpayer has satisfied all his duties to trigger the statute of limitations. Respondent has many tools to determine the appropriate liability, but he must use these tools within the prescribed limitations period. We simply see no reason to allow respondent to toll the statute of limitations where petitioner properly filed a return.[21]

Because the Court decided the first filing attempt began the running of the statute, the Court did not move on to decide what some might have been more interested in—would the use of DocuSign to sign the paper return have been deemed an acceptable method of signing in this case.[22]

While this case is favorable to the taxpayer, one area of concern is that, in the end, the Tax Court based the decision on IRS instructions, something that the IRS can much more easily revise than regulations. It’s not clear if the IRS had stated that an IP PIN was part of the required signature in the instructions to Form 1040 if the result would still have been in favor of the taxpayer, so advisers should take care to note if the IRS revises those instructions in the future.

[1] Fowler v. Commissioner, 155 TC No. 7, September 9, 2020, https://www.ustaxcourt.gov/UstcInOp2/OpinionViewer.aspx?ID=12321 (retrieved September 9, 2020)

[2] Fowler v. Commissioner, 155 TC No. 7, p. 4 Footnote 4

[3] Fowler v. Commissioner, 155 TC No. 7, pp. 3-4

[4] Fowler v. Commissioner, 155 TC No. 7, pp. 4-5

[5] Fowler v. Commissioner, 155 TC No. 7, p. 5

[6] Fowler v. Commissioner, 155 TC No. 7,pp. 5-6

[7] Fowler v. Commissioner, 155 TC No. 7, p. 11

[8] Fowler v. Commissioner, 155 TC No. 7, p. 8, Footnote 8

[9] Fowler v. Commissioner, 155 TC No. 7, p. 9, citing Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff’d 793 F.2d 139 (6th Cir. 1986)

[10] Fowler v. Commissioner, 155 TC No. 7, pp. 10-11

[11] Fowler v. Commissioner, 155 TC No. 7, p. 11

[12] Fowler v. Commissioner, 155 TC No. 7, p. 12

[13] Fowler v. Commissioner, 155 TC No. 7, pp. 12-13

[14] Fowler v. Commissioner, 155 TC No. 7, p. 13

[15] Fowler v. Commissioner, 155 TC No. 7, p. 13

[16] Fowler v. Commissioner, 155 TC No. 7, p. 14

[17] Fowler v. Commissioner, 155 TC No. 7, p. 15

[18] Fowler v. Commissioner, 155 TC No. 7, p. 15

[19] Fowler v. Commissioner, 155 TC No. 7, p. 17

[20] Fowler v. Commissioner, 155 TC No. 7, pp. 17-18

[21] Fowler v. Commissioner, 155 TC No. 7, p. 19

[22] Fowler v. Commissioner, 155 TC No. 7, p. 8