During the COVID-19 pandemic, many people turned to digital signatures to avoid meeting face to face. And, as we’ve noted in prior posts, the IRS also authorized the use of electronic signatures for many purposes.[1] If you search Google for “digital signatures legally binding” you are likely to get links to articles from many digital signature providers with headlines stating that such signatures are legally binding.

But if you read behind the headlines you will find caveats and exceptions. In the case of Mills v. United States,[2] the taxpayer discovered that signatures on tax documents are subject to specific requirements and his use of a digital signature did not count, costing him the chance to pursue his claim for refund.

The taxpayer in question was a U.S. citizen living in Australia working for a defense contractor. His path to this case dealing with electronic signatures began when he had a tax consulting firm look at his tax returns.

In 2018, the plaintiff hired a tax-consulting firm, Castro & Co., LLC, to review his tax returns and to prepare amended returns. (Id. ¶ 45.) Castro & Co. determined that the plaintiff was entitled both to an FEIE[3] and to a tax exclusion for employer-provided lodging. (Id. ¶ 46.) The plaintiff had not claimed either exclusion on his original 2015 and 2016 tax returns. (Id.) Based on this assessment, the plaintiff sought to amend his returns.[4]

Mr. Mills initially tried to file amended returns by having an associate of the tax consulting firm sign the amended returns on his behalf:

On November 29, 2018, the plaintiff filed Form 1040X, U.S. Amended Income Tax Returns, for both tax years 2015 and 2016 (“first amended returns”), claiming a refund of $10,950.00 and $1,764.00, respectively. (Id. ¶ 47; see also ECF 24-2, Ex. 5; ECF 24-3, Ex. 7.) Because he was living in Australia when he filed his first amended returns, the plaintiff did not sign them. (Mills Decl. ¶ 5; see also ECF 24-2, Ex. 5 at A-083; ECF 24-3, Ex. 7 at A-179.) Instead, Tiffany Michelle Hunt, an associate of Castro & Co., signed her name on both the 2015 and 2016 amended returns on each return’s line designated for the taxpayer’s sworn signature in the jurat. (See ECF 24-2, Ex. 5 at A-083; ECF 24-3, Ex. 7 at A-179.) The name “John Anthony Castro,” of Castro & Co., was typed on the line designated for the preparer’s signature. (See ECF 24-2, Ex. 5 at A-083; ECF 24-3, Ex. 7 at A-179.) The plaintiff did not include a power of attorney with these first amended returns. (See ECF 24-2, Ex. 5; ECF 24-3, Ex. 7.)

Several months after filing the first amended returns, the plaintiff filed a Form 2848, Power of Attorney and Declaration of Representative, that he signed on January 31, 2019. (Mills Decl. ¶ 6; see also ECF 24-3, Ex. 9.) On his Form 2848, the plaintiff indicated his authorization for John Anthony Castro, Tiffany Michelle Hunt, and Kasondra Kay Humphreys to represent him before the IRS. (Mills Decl. ¶ 6; see also ECF 24-3, Ex. 9.) Although the plaintiff gave these three representatives authority to act on his behalf for income-tax matters, he did not check the box in Part 5a of Form 2848 providing them with the authority to “[s]ign a return.” (ECF 24-3, Ex. 9 at A-276.) The plaintiff signed the power of attorney form with his handwritten signature. (See id. at A-277.)[5]

Eventually the IRS noticed that the taxpayer had not himself signed the returns in question:

In a letter dated August 20, 2019, the IRS advised the plaintiff that the first amended returns did “not appear to have your signatures” and that it did “not appear that you have authorized a representative to sign a return on your behalf.” (ECF 24-3, Ex. 11 at A-280.) The IRS requested the plaintiff submit 1040X forms bearing original signatures. (Id.)

By this time, the taxpayer was now on assignment in Afghanistan, facing the request that he hand sign the forms:

In response to the IRS’s request, on August 27, 2019, the plaintiff again filed Form 1040X, U.S. Amended Income Tax Returns, for tax years 2015 and 2016 (“second amended returns”). (ECF 1, ¶ 47; see also ECF 24-3, Exs. 6 & 8.) At the time of filing, the plaintiff was deployed by his employer to Afghanistan without an easily accessible unclassified printer to print, sign by hand, and scan the documents. (Mills Decl. ¶¶ 9-11.) Instead of signing the forms by hand, the plaintiff attests that he electronically “signed” each Form 1040X with his initials, “KJM.” (Id. ¶ 11; see also ECF 24-3, Ex. 6 at A-176, Ex. 8 at A-275.) He attests that he intended the digital markings to be his signature and to bind him to the second amended returns. (Mills Decl. ¶ 11.)[6]

Mr. Mills filed suit in the Court of Federal Claims attempting to get the refunds he claimed were due to him on the amended returns. But the IRS argued that Mr. Mills had failed to take the steps necessary to bring this matter before the United States Court of Federal Claims:

IRC §7422(a) provides:

No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof.[7]

The IRS pointed out that the regulations required written verification under penalty of perjury, and that such a claim must be signed properly.[8] The IRS position was that such a digital signature was not an authorized method of signing this return at the time it was filed in August of 2019.

The Court noted that the IRS has provided little guidance on what is necessary for a signature, not defining the words sign or signature.[9]

Congress did direct the IRS to develop measures to accept electronic signatures in 1998, adding IRC §6061(b)(1) which provides:

(b) Electronic signatures. —

(1) In general. — The Secretary shall develop procedures for the acceptance of signatures in digital or other electronic form. Until such time as such procedures are in place, the Secretary may —

(A) waive the requirement of a signature for; or

(B) provide for alternative methods of signing or subscribing,

a particular type or class of return, declaration, statement, or other document required or permitted to be made or written under internal revenue laws and regulations.[10]

The Court noted that over those more than twenty years the IRS had not, until recently, developed any procedures to accept electronic signatures on amended returns. The Court also notes that while the IRS instructions for the original Forms 1040 for the years in question provide for accepting electronic signatures with a personal identification number, the instructions for amended returns had no comments on accepting electronic signatures.[11]

The taxpayer argued that his electronic signature should count as a signing of the amended return:

The plaintiff argues that he did sign the second amended returns under penalty of perjury, as required by Treasury Regulation § 301.6402-2(b). He relies on the definition of “signature” found at 1 U.S.C. § 1: “’signature’ or ‘subscription’ includes a mark when the person making the same intended it as such.” 1 U.S.C. § 1.9 At the time that he filed his second amended returns, the plaintiff was working in Afghanistan. (Mills Decl. ¶ 9.) Without an easily accessible unclassified printer to print, sign by hand, and scan the documents, the plaintiff attests that he electronically signed the form with his initials, “KJM,” and intended those digital markings to be his signature and to bind him to the second amended returns. (Id. ¶¶ 9-11; see also ECF 24-3, Ex. 6 at A-176, Ex. 8 at A-275.) Although the plaintiff argues that, as a matter of policy, he should be allowed to submit an electronic signature in his unique situation, he cannot point to any source of law authorizing him to do so.

The plaintiff also relies on the definition of electronic signature in the Government Paperwork Elimination Act (“GPEA”), Pub. L. No. 105-277, §§ 1701-10, 112 Stat. 2681 (1998). The GPEA provides that “[t]he term ‘electronic signature’ means a method of signing an electronic message that — (A) identifies and authenticates a particular person as the source of the electronic message; and (B) indicates such person’s approval of the information contained in the electronic message.” GPEA § 1710. The plaintiff cites a 2016 IRS Chief Counsel Advisory that provided that digital signatures are legally sufficient under the GPEA and I.R.C. § 6061(b)(1), the provision directing the Secretary to develop procedures for accepting signatures in digital or other electronic form. Electronic Signatures & Form 2678, IRS CCA 201650019 (Dec. 9, 2016).

But the Court did not accept either justification. First, it notes that the law, by itself, did not allow for the taxpayer’s digital signature.

The Court, however, finds that I.R.C. § 6061(b)(1) does not, on its own, authorize the plaintiff’s digital markings as a signature. Until the Secretary establishes procedures for digital or electronic signing, the Secretary may, but is not required to, waive the signature requirement or provide alternative methods of signing. I.R.C. § 6061(b)(1). The plaintiff has not pointed to any waiver or alternative method authorizing him to sign his second amended returns with digital markings as a signature. Similarly, 1 U.S.C. § 1 does not determine the meaning of signature in I.R.C. § 6061. The definition of “signature” in 1 U.S.C. § 1 applies “unless the context indicates otherwise.” 1 U.S.C. § 1. Context indicates otherwise here; in fact, I.R.C. § 6061(b)(1) expressly governs electronic signatures on tax returns. See First Nationwide Bank v. United States, 431 F.3d 1342, 1348 (Fed. Cir. 2005) (“As a principle of statutory interpretation, a specific provision prevails against broader or more general provisions, absent clear contrary intent.”). Under I.R.C. § 6061(b)(1), the plaintiff cannot digitally mark a tax return as a signature without a waiver or prescribed alternative method of signing.[12]

The Court also rejected the taxpayer’s attempt to rely on the GPEA and a Chief Counsel Advisory, noting:

The plaintiff’s reliance on the GPEA and the Chief Counsel Advisory is likewise misplaced. As the plaintiff admits, the GPEA does not apply to the IRS. See GPEA § 1709 (providing explicitly that the GPEA does not apply to the Department of the Treasury or the IRS). As for the Chief Counsel Advisory, it “may not be used or cited as precedent.” IRS CCA 201650019; see I.R.C. § 6110(k)(3) (“Unless the Secretary otherwise establishes by regulations, a written determination may not be used or cited as precedent.”).

Not only may the Chief Counsel Advisory not be relied on as precedent, but it also did not consider the question of electronic signatures on tax returns. See generally IRS CCA 201650019. The Advisory examined “whether the Service may accept a Form 2678, Employer/Payer Appointment of Agent, that displays an electronic signature.” Id. (italics in original). Its conclusion cuts against the plaintiff’s argument. The Advisory concluded that the IRS should not accept electronic signatures without published guidance:

It is our view that an electronic signature should only be accepted by the Service when there are published guidance or [Internal Revenue Manual (“IRM”)] provisions that specifically authorize use of an electronic signature for the specific form involved. Since there is no guidance or IRM provisions authorizing the use of an electronic signature on Forms 2678, we recommend that the Service not accept Forms 2678 signed electronically until the Service authorizes its use for Forms 2678 either in published guidance or in the IRM.

Id.[13]

The opinion notes that the taxpayer has not provided any example of a provision providing for such authorization to use the digital signature in the amended return situation:

The plaintiff here has not cited any provision, in the IRM or otherwise, that authorized the use of an electronic signature on Form 1040X amended returns at the time he filed his second amended returns. That the plaintiff is unable to do so is not surprising. Electronic signatures are required for documents that may be submitted in electronic format; forms that have traditionally been filed in paper format must always have a handwritten signature.[14]

Thus, the Court finds the taxpayer has not submitted a signature with his amended return and therefore the return is not treated as filed:

The IRS had not established procedures for accepting electronic signatures on hard-copy amended returns, had not waived the signature requirement, and had not prescribed an alternative method of signing at the time the plaintiff filed his amended returns. Accordingly, the plaintiff’s digital markings on his second amended returns do not meet the requirement that his returns “be signed” and, as a refund claim, “be verified by a written declaration that it is made under the penalties of perjury.” I.R.C. § 6061(a); Treas. Reg. § 301.6402-2(b).[15]

[1] See Edward Zollars, “IRS Extends and Expands Temporary Deviation Allowing Some Forms to Be Signed Electronically or Digitally,” Current Federal Tax Developments website, April 23, 2021, https://www.currentfederaltaxdevelopments.com/blog/2021/4/23/irs-extends-and-expands-temporary-deviation-allowing-some-forms-to-be-signed-electronically-or-digitally (retrieved July 15, 2021)

[2] Mills v. United States, United States Court of Federal Claims, July 14, 2021, https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/%27digital-marks%27-on-amended-returns-spell-end-of-refund-suit/76vwb (retrieved July 15, 2021)

[3] Foreign Earned Income Exclusion

[4] Mills v. United States, United States Court of Federal Claims, July 14, 2021

[5] Mills v. United States, United States Court of Federal Claims, July 14, 2021

[6] Mills v. United States, United States Court of Federal Claims, July 14, 2021

[7] Mills v. United States, United States Court of Federal Claims, July 14, 2021

[8] Treasury Reg. §301-6402-2

[9] Mills v. United States, United States Court of Federal Claims, July 14, 2021

[10] IRC §6061(b)(1)

[11] Mills v. United States, United States Court of Federal Claims, July 14, 2021

[12] Mills v. United States, United States Court of Federal Claims, July 14, 2021

[13] Mills v. United States, United States Court of Federal Claims, July 14, 2021

[14] Mills v. United States, United States Court of Federal Claims, July 14, 2021

[15] Mills v. United States, United States Court of Federal Claims, July 14, 2021