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Will A Careless E-File Mistake Invalidate A Tax Return?

Nov. 14, 2019, 9:46 AM

Technology has changed the way we file taxes. With the click of a button or the touch of your finger on a screen, you can submit your tax returns—and taxpayers are more than willing to hit enter.

According to the most recent data provided by the Internal Revenue Service, nearly 94% of individual returns for the 2018 tax year were filed electronically. The IRS says e-filed returns are faster, easier, and more accurate than paper returns. But what happens when the rush to e-file ends in a mistake?

That’s precisely the question that the IRS tackled in a recent written determination (Release 201945027). Written determinations are taxpayer-specific rulings, published on the IRS website. According to Section 6110(k)(3), they aren’t intended to be used or cited as precedent, but that doesn’t mean that there aren’t some valuable lessons to be learned.

In Release 201945027, the taxpayer asked about e-filed returns—specifically, whether a partnership return signed by the CFO of a corporation that is the sole general partner of a partnership constituted a valid return.

In this case, the CFO signed Form 8879-PE, e-file Signature Authorization for Form 1065 using a different title than his capacity as the CFO of the partner corporation. The taxpayer wondered whether that mistake would invalidate the return. The IRS replied that “All else being proper, the return is valid.”

According to the IRS, for a return to be valid, the taxpayer must sign it under penalties of perjury Beard v. Commissioner, 82 T.C. 766,777 (1984). That’s tax prep 101—and something that a good tax professional always makes known.

It’s also true that by statute, a partnership return must be signed by one of the partners (Section 6063). Similarly, a corporation’s return must typically be executed by a corporate officer (Section 6062). That may include a “president, vice-president, treasurer, assistant treasurer, chief accounting officer or any other officer” or a fiduciary. Further, an individual signature on the return serves as prima facie evidence that the individual is authorized to sign the return on behalf of the corporation.

The IRS confirmed that “authority to sign a tax document on behalf of an entity follows authority to sign a return for that entity.”

With that, the IRS didn’t find it necessary to confirm whether the CFO was authorized to sign the partnership return on the corporation’s behalf. In the absence of evidence that he lacked authority, merely signing the return was enough. And since the corporation was a partner of the partnership, the corporation officer’s signature on a partnership return would be considered valid.

E-filing adds a slight twist. With a professionally prepared e-filed return, the IRS requires that the tax preparers retain a signed Form 8879 (or a form in the 8879 series) for each return. The form contains a declaration that the taxpayer has reviewed the tax return and that the information on the Form 8879 matches the information on the tax return. The form also serves as evidence that the tax preparer was authorized to file the return.

But what if the person responsible for signing the return makes a mistake on Form 8879? Would that change whether the tax return was correctly e-filed? In other words, does an error in execution necessarily invalidate an otherwise properly filed return?

Courts have said no. If the person who signed was the proper person, the fact that a return wasn’t signed in the correct capacity doesn’t make the return invalid. Ironically, the IRS cited a decades-old, pre-internet case, Consolidated Apparel Co. v. Commissioner, 17 TC 1570 (1952), to confirm their finding.

In Consolidated Apparel, an individual signed a corporate return as president of the corporation. The problem? The return, at that time, required two signatures. The person who signed the return was the president and treasurer, so the court found that the tax return was valid, writing, “Perhaps [Petitioner] should have signed twice, once as president and again as treasurer, but that, we think, is not a serious defect. In our opinion, the return as filed substantially complied with the requirements of the statute as to verification.”

That’s true concerning the underlying return, but “all the more so not fatal to the Form 8879-PE.” In other words, using an incorrect title on the Form 8879-PE doesn’t change the answer.

Neither does the missing date next to the CFO’s signature (apparently, there were a few errors on the form). The IRS claims that since forms in the 8879 series aren’t attached to a return or otherwise filed with anyone other than the preparer, they don’t play a part in the validity of the return (barring evidence of forgery or unauthorized filing).

The easiest way to avoid these kinds of questions is to double-check your tax return before submitting it. That means that you should scan the entire tax return—along with forms and schedules—and not just the numbers. The IRS cites unsigned tax returns (including e-filed tax returns) and electronic filing PIN mistakes in their common filing errors to avoid.

And tax professionals aren’t exempt from the need to conduct last-minute reviews. In addition to reviewing the return, taking a second look at the associated forms, like Form 8879, is always a good idea.

To contact the reporter on this story: Kelly Phillips Erb at kelly.erb@taxgirl.com

To contact the editors responsible for this story: Rachael Daigle at rdaigle@bloombergtax.com; Kathy Larsen at klarsen@bloombergtax.com