The IRS has historically rejected e-file returns for reasons that seemingly have nothing to do with whether the taxpayer filed a valid return, pursuant to the Beard test (Beard v. Comm’r of Internal Revenue, 82 T.C. 766 (1984), aff’d, 793 F.2d 139 (6th Cir. 1986)).
However, in Fowler v. Commissioner, 155 T.C. No. 7 (2020) the disparity between the way the IRS treats e-filed returns and the way it treats returns mailed by regular mail catches up with it in a fully reviewed opinion with no concurrences or dissents!
The U.S. Tax Court on September 9, 2020 in a “reviewed opinion” held that a properly filed income tax return triggers the statute of limitations for a deficiency notice, regardless of the fact that the return, electronically filed, lacked a required personal identification number.
The taxpayer, an individual, appointed his tax return preparer to electronically file his 2013 tax return on October 15, 2014. The IRS software rejected this return for its failure to include an Identity Protection Personal Identification Number (IP PIN).
The taxpayer subsequently refiled his 2013 tax return on two occasions and the last filing was made with an IP PIN on April 30, 2015. The IRS software reviewed and accepted the return.
The IRS later reviewed the return, determined a deficiency, and sent the taxpayer a notice of deficiency for the 2013 tax year on April 5, 2018.
The taxpayer filed a petition with the Tax Court. The IRS moved for partial summary judgment, and the taxpayer filed a cross-motion for summary judgment asserting t
hat the IRS had not timely issued a notice of deficiency.
At Issue Was Whether The Taxpayer’s First Submission of The Income Tax Return On October 15, 2014, Was a FILED Returns Which Triggered The Section 6501(A) Limitations Period.
Relying on the test to determine whether a document constitutes a tax return as set forth in Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff’d, 793 F.2d 139 (6th Cir. 1986), the Tax Court granted summary judgment for the taxpayer, holding that the taxpayer’s first submission triggered the section 6501(a) limitations period, notwithstanding the omission of an IP PIN.
The Tax Court concluded:
The October 15 submission appears to be an honest and reasonable attempt to comply with the tax laws. The submission included inputs for income, deductions, exemptions, and credits along with supporting documentation and schedules. The only difference between the October 15 submission (which [IRS] rejected) and the April 30 submission (which [IRS] accepted) is that the October 15 submission did not include an IP PIN.
Where a taxpayer properly files a required return, the taxpayer has satisfied all his duties to trigger the statute of limitations. … We simply see no reason to allow [IRS] to toll the statute of limitations where [taxpayer] properly filed a return.
The Court noted that the IRS regularly rejects returns that meet the Beard test:
- The Modernized e-File (MeF) system, which the IRS uses to process efiled returns, rejects returns for numerous errors that may not cause a return to fail the Beard test.
- In a footnote to this sentence the Court also noted that although the Internal Revenue Manual says that the IRS should reject e-filed returns failing to contain a IP PIN when the IRS had sent one to the taxpayer, the same provision does not provide for the IRS to return the paper filed return with the same problem.
- Because the IRS provided no authority for the fact that its programmers injected into the system a requirement that the taxpayer must attach the IP PIN, the Court found that the original return Mr. Fowler filed constituted a valid return, making the notice of deficiency one sent after the statute of limitations had expired.
As the IRS developed and refined e-filing, it let programmers define acceptable e-filing. However, the programmers did not keep consider the Beard test, which was decided and provide guidance for a different time.