Don't Mess With Taxes

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Back in olden times, taxpayers put their literal signatures on the 1040 forms they filed with the Internal Revenue Service. Now, most of us electronically sign our tax returns.

Regardless of which method you use, the end result is the same. If you don't sign your tax return, it's not a valid submission.

That oversight cost one expatriate couple $12,697 in tax refunds.

The loss recently was affirmed the Federal Circuit Court of Appeals. The ruling gets this weekend's Sunday Shout Out.

I'll let you read it yourself. It's not that long (just nine pages), and as legal decisions go, it's pretty readable.

But here's a quick overview, since in addition to tax return signatures, it also involves a few other tax issues.

Amended overseas issues: A married U.S. couple living in Australia for work purposes filed amended returns for the 2015 and 2017 tax years claiming, respectively, refunds of $7,636 and $5,061.

The couple's U.S.-based attorney handled the revised tax filings, which were based on the prior tax years' applicable U.S. tax exclusion amounts on income earned abroad.

Then things got messy.

The IRS initially dismissed the couple's amended refund claims based on, per court documents, an agreement that the husband "may have entered into" with his employer "irrevocably waiving … rights to claim the Foreign Earned Income [Exclusion]."

The couple contested the IRS decision in U.S. Federal Claims Court. There the IRS argued for dismissal of the lawsuit for lack of subject matter jurisdiction.

Invalid legal remedy: The IRS contended that the Claims Court couldn't hear the case because the reason for the lawsuit was not valid.

Why? The couple never "duly filed" their administrative refund claims that were cited as the basis for the lawsuit.

The IRS pointed out that 1040-X filings were not signed by the filing couple, but by their attorney. And when that lawyer submitted the couple's revised tax filings, he didn't include a power of attorney Form 2848 signed by them and allowing him to legally sign on their behalf.

That omission, argued the IRS, meant that the attorney's signature was not valid. Hence, the amended returns (and claims for refunds) were not duly filed legal returns.

And that, said the IRS, meant there was no basis for follow-up court claims.

The U.S. Claims Court judge agreed, dismissing the couple's case.

Same case, repeat appellate verse: You know what comes next. The couple appealed. But to no avail. So far.

The three-member Federal Circuit Court of Appeals panel also agreed with the IRS. Sort of.

I'll let the jurists' decision explain:

    "We conclude that the Claims Court erred in holding that the [couples'] claim for refund was jurisdictional, but that it was harmless error because the [couple] failed to meet the 'duly filed' requirement."

…

   To be 'duly filed' a claim: [M]ust set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof. The statement of the grounds and facts must be verified by a written declaration that it is made under the penalties of perjury. A claim which does not comply with this paragraph will not be considered for any purpose as a claim for refund or credit." 

Ultimately, said the Court, "Because the taxpayer signature and verification requirements derive from statute, the IRS cannot waive those requirements. … In sum, the Claims Court properly dismissed the [couple's] suit because the [couple] did not comply with the "duly filed" requirement in § 7422(a)."

Again, check out today's Sunday Shout Out full court ruling for all the legal and Internal Revenue Code details as to how the IRS prevailed. Even with all the other considerations in this couple's convoluted case, it came down to no signature, no refund.

So keep that filing bottom line, which is literally where on Form 1040 that taxpayers and their preparers will find the required signature blocks, like the one below from 2021 Form 1040. As the appellate court did, note the reminder about perjury penalties.

More global tax matters: You also might want to read the following posts (yeah, a shameless shout out to the ol' blog) that address the other issues touched on in this case:

• Tax preparers (and filers) signature requirements — Ghost preparers are among continuing scary tax scams, Don't fear, or fall for, these 13 seemingly scary tax tidbits (see #13 about signatures and perjury) and additional IRS-acceptable e-signatures for 41 IRS forms now can be signed electronically
• Foreign U.S. citizens' tax responsibilities — June 15 is Tax Day, take two, for millions of filers and American expatriates don't like paying U.S. taxes
• Foreign Earned Income Exclusion 2022 — Inflation adjustments for 2022 taxes that apply to Americans living and working abroad
• Married couples' shared tax lives — Married couples filing joint returns share all tax liability, too
• And some general global tax considerations — 2021 housing cost tax break amounts for U.S. expatriates; Pay your taxes to protect your passport; Oct. 15 also the deadline for foreign account FBAR filings; and FinCEN, FBAR and other tax costs that prompt or slow U.S. expatriations

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