Attorney-at-Law

THE SCARLET LETTER

In Uncategorized on 10/13/2015 at 17:47

No, not Nat Hawthorne’s 1850 New England morality play. Today, Judge Laro has more bad news for Bradley C. Reifler and Nancy Reifler, 2015 T. C. Memo. 199, filed 10/13/15.

The facts are a replay of 2013 T. C. Memo. 258, filed 11/13/13. I didn’t blog that case then, and I can’t claim clairvoyance that it would resurface today. Judge Halpern bounced Brad’s and Nan’s SOL defense on equitable estoppel grounds.

Brad and Nan cave on the deficiencies they tried to erase back in 2013, but want to fight the late-filing chop on grounds of substantial compliance and tacit consent. Judge Halpern only mentioned them then, so that’s dicta, but Judge Laro isn’t buying either.

As regards substantial compliance, Nan never signed the original joint return their trusty accountant prepared. Brad did, didn’t date the return and mailed it in.

IRS bounced the return with a large red “S” on page two, hence the title of the blogpost. Now the bounced return was supposed to be accompanied by other documentation, which Brad and Nan don’t remember getting. Howbeit, Brad never mentioned the bounce to the trusty accountant, but years later whited out the scarlet letter, copied the page, had Nan sign, and sent it in.

Brad and Nan claim the first iteration of the return was substantial compliance. No, says Judge Laro, signing under penalty of perjury is an essential element of an honest attempt to comply with law, the basis of all substantial compliance. The only exceptions are sick or disabled spouse, or properly filed POA.

“Tax law is complex and confusing to most of us. Sometimes it is appropriate for the courts to clarify the subtleties of statutory and regulatory provisions. The requirement of a signature on a tax return, however, is not one of those issues. It would be inappropriate for this Court to use its power to create a potentially unlimited exception to a well-established and fairly simple rule. “ 2015 T. C. Memo. 199, at p. 17.

Ya gotta sign it for it to be a return. And joint means both spouses. Judge Laro has a bushelbasketful of cases saying so.

As for tacit consent, that’s only where joint and several liability is at issue, and here it isn’t.

Whether a spouse who didn’t sign a return nevertheless consented to it raises too many questions.

“Petitioners’ argument that it is the intent of the spouses that counts when it comes to filing tax returns is somewhat tempting in that it would allow us to resolve the case before us easily. However, as discussed above, a signature under penalty of perjury has additional significance when it comes to determining the issue of liability for any unpaid taxes or related penalties. It would be unfair to expose a nonsigning spouse who never intended to sign a joint tax return to the burdens of litigation that could span many years when that spouse did not in fact attest to the veracity of the statements on the tax return. We believe the intent to file a joint return is different from signing a document under penalty of perjury, and the two do not supplement or replace each other. Using the tacit consent doctrine in cases when a tax return is rejected by the Commissioner for lack of compliance with the most basic requirements would only create chaos.” 2015 T. C. Memo. 199, at p. 26.

IRS claims administrative regularity as regards mailing the explanatory documents with the bounced return, but Judge Laro needn’t go there. Brad is a sophisticated businessperson who never had a return bounced before, and who has always consulted his trusty accountant on tax matters. Here he did nothing, and his trial testimony was vague and unconvincing.

But the ultimate fact is he whited out The Scarlet Letter before submitting the return late.

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