IRS Strictly Construes “Return” Definition

H and W (joint filers) were selected for examination, because the IRS had no record of receiving their Year 1 return. The IRS filed a substitute for the return (SFR). H and W later provided the IRS with a signed Year 1 Form 1040 labeled “Estimated Return.” The IRS did not process the form and issued H and W separate deficiency notices.

Analysis

In general, Sec. 6012(a) requires individuals to file a tax return every year. Sec. 6011(a) provides that the return must conform to the IRS's forms and regulations. In addition, all taxpayers are expected to carefully prepare their returns; Regs. Sec. 1.6011-1(b) requires them to “set forth fully and clearly” all required information. Individuals must use Form 1040 to file a return; see, e.g., Williams, 114 TC 136 (2000); Steines, TC Memo 1991-588.

Here, H and W received income sufficient to require filing a return for Year 1. In addition, H and W are individuals, and thus required to use Form 1040.

H and W mailed to an IRS revenue agent a Form 1040 for Year 1. At the top of the first page of the Form 1040, they wrote “Estimated Return,” augmentation that calls into question the return's validity.

The Tax Court, in Beard, 82 TC 766 (1984), aff'd, 793 F2d 139 (6th Cir. 1986), presented the Supreme Court's requirements for a valid return, in the following four-part test:

1. There must be sufficient data to calculate the tax liability.

2. The document must purport to be a return.

3. There must be an honest and reasonable attempt to satisfy the tax law's requirements.

4. The taxpayer must execute the return under penalties of perjury.

As suggested by the Beard test, the determination of whether a document submitted by a taxpayer is a valid tax return depends on the facts and circumstances. The Ninth Circuit has held that a return that contains nothing but zeroes constitutes a valid return; see Long, 618 F2d 74 (9th Cir. 1980).

However, a taxpayer's addition of language to Form 1040 may render it invalid. In Jenkins, TC Memo 1989-617, the taxpayer filed a return with a modified jurat. Instead of declaring under penalty of perjury that her return was “true, correct and complete,” the taxpayer declared that her return was estimated. The Tax Court held the taxpayer's return invalid.

According to the Jenkins court, no authority holds that taxpayers need only estimate their taxes on their return. A person who merely estimates her taxes is not making an “honest and reasonable attempt” to meet the Code's requirements. The return language that the taxpayer's taxes were “estimated” means that the IRS would not be able to calculate the actual tax liability.

Applying the Beard test as well as other relevant case law, H and W have failed to file a valid tax return for their Year 1 tax year. The first part of the Beard test requires that H and W provide sufficient information for the IRS to calculate the actual tax liability. On the first page of Form 1040, H and W stated that their Form 1040 was only estimated.

Similar to the return filed in Jenkins, H and W, using estimates, have made it impossible for the IRS to compute their actual Year 1 tax liability. Accordingly, H and W have failed to meet the first part of the Beard test.

The third part of the Beard test is that the taxpayers must make an “honest and reasonable attempt to satisfy” the tax law's requirements. A taxpayer who simply estimates his taxes has not made such an attempt.

Unlike the taxpayers in Long, who placed zeroes on each line, H and W in this case have simply left such lines blank. Entering nothing while asserting to be gainfully occupied does not evince an honest and reasonable attempt at preparing an accurate Year 1 return.

Based on the case law above, H and W have failed to provide to the IRS a valid return for Year 1. H and W have also failed to comply with Sec. 6091, because they mailed their Year 1 return to the examining revenue agent rather than to the appropriate Service Center; thus, they have not properly filed their Year 1 return.

Field Service Advice 200235002 (4/30/02)

REFLECTIONS: In CCA 200235025 (7/9/02), the IRS determined that filing a Form 1040 after a deficiency assessment based on an SFR, and requesting that the IRS abate a part of the assessed liabilities, does not have a tax purpose. The purpose for filing a return to report income information and self-assess tax liability ceases to exist after the IRS determines the taxpayer's income and computes the tax liability.