Unsigned Return Claiming Joint Filing Status Was Valid; 10th Cir. Reverses TC

After 15 years of marriage, H and W were divorced in 1996. After obtaining two extensions, their 1995 return was filed on Oct. 15, 1996. The return was not signed by either H or W, but did include the signature of their paid preparer. (H and W did file joint state tax returns.) The IRS processed this return as a joint return and, in 1997, H paid the taxes due.

In 1997, W declared bankruptcy. The Service, during a review of her returns, informed W that she and H had failed to sign the 1995 return. At the IRS's suggestion, she signed and filed a separate individual 1995 return in 1998.

In 1998, the Service notified H that he had not filed a valid 1995 return. In two meetings with IRS agents, H asked to sign the original return to correct the problem, but was not allowed to do so (apparently because W had filed her separate 1995 return).

In 1998, the Service reversed its original processing of the 1995 return and, in 1999, issued a deficiency notice to H.

In a memorandum decision, the Tax Court held for the IRS. The Tenth Circuit (opinion Baldock, J.) reverses, ruling that, given H's actions and his efforts, he intended to file a joint return for 1995.

The IRS's usual practice when it receives an unsigned return that is valid in all other respects is either to return it to the taxpayer for signature and resubmission or to send a letter stating that the taxpayer's signature is needed and requesting that the taxpayer sign a "jurat" under penalty of perjury that will become a permanent part of that return. H established that the Service did not send the return back to him either in 1996 when it processed the return or in 1997 when it reviewed the return, and continued to treat it as a valid return by accepting his payments until he had paid the original assessment in full. He showed that the IRS treated it as a valid return in February 1998 when it used the original assessment date as part of its proof of claim in W's bankruptcy. H proved that IRS agents twice refused to allow him to sign the original return when he asked to do so. H argued that, because the Service had no right to deny him his right to sign the return and had processed and treated the return as valid until September 1998, it waived its right to rely on the statutory requirement in declaring the return invalid for lack of a signature.

H argued that, if he had been allowed to sign the return as he requested, as it was his and W's undisputable intention in 1996 to file a joint return, he fell into the exception to the general rule that a return must be signed by both a husband and a wife to be valid.

The Tax Court did not address H's waiver argument except to state that there is no statutory language requiring the IRS to waive the signature requirement. Although the Tax Court acknowledged that H correctly stated the exception, it held that the exception did not apply "in the absence of both spouses' signatures on a joint return" and that "taxpayers may not circumvent the signature requirement simply by attempting to elect to file a joint return."

We believe the Tax Court missed H's point about a waiver and his assertion that he has never tried to circumvent the signature requirement but, rather, had unsuccessfully sought to sign his return. What is clear is that the Service cannot deny a taxpayer the right to sign his original return and simultaneously declare that the original return is invalid for lack of a signature. H's right to sign his return arose from his statutory duty to file a signed return; see Sec. 6061. This case is similar to, and controlled by, our decision in Dowell, 614 F2d 1263 (1980), in which, after having filed fraudulent returns for 19631966, in 1968 the taxpayers made an honest and genuine effort to satisfy the tax laws by preparing and filing accurate joint returns. Unfortunately (as in this case), they failed to sign them. The IRS accepted the unsigned joint returns without returning them for signatures and then relied on and used them in the investigation and prosecution of the taxpayers for fraud. In 1974, the Service issued a deficiency notice for tax years 19631966, imposing additional taxes, plus penalties and interest. The taxpayers argued that the unsigned returns filed in 1968 triggered the three-year statute of limitations. As here, the IRS argued that no valid returns had ever been filed because of the lack of signatures. We disagreed, holding that the Service's acceptance, failure to return for signature and use of the unsigned returns constituted acceptance of the returns for all purposes.

As discussed, the IRS accepted, processed, audited and used H and W's joint return for at least a year after notifying W of the signature omission. If the tax forms had been returned to H at any time, he would have signed and resubmitted them. Having denied H the right to sign his return before W filed a separate return at the Service's suggestion, the IRS may not now argue that H "lost" his joint filing status because he did not sign the joint return before the separate return was filed.

Nathan T. Olpin, 10th Cir., 1/25/01, rev'g TC Memo 1999-426