DocketNumber: Docket No. 18082-10
Citation Numbers: 110 T.C.M. 360, 2015 Tax Ct. Memo LEXIS 209, 2015 T.C. Memo. 199
Judges: LARO
Filed Date: 10/13/2015
Status: Non-Precedential
Modified Date: 4/18/2021
Decision will be entered under
LARO,
2000 | $4,215,759 | $905,546.56 | $1,006,162.85 |
2001 | 2,697,054 | — | — |
2002 | 1,665,561 | — | — |
2003 | 1,126,931 | 37,135.44 | 206,308.00 |
2004 | 914,120 | — | — |
2005 | 1,092,913 | — | — |
2000 | $159,514.40 | $1,367,274.80 |
2001 | 110,458.40 | 857,904.80 |
2002 | 67,699.40 | 392,000.00 |
2003 | 225,290.00 | — |
2004 | 147,353.40 | 70,941.20 |
2005 | 182,072.40 | 73,020.40 |
The parties filed two stipulations of settled issues which resolved all the issues raised in the notice of deficiency except for the applicability of the additions to tax under
We decide the following issues:
1. whether a purported joint Federal income tax return for the 2000 tax year that included the signature of Mr. Reifler but not of Mrs. Reifler was a valid tax return.3*211 We hold it was not;
2. whether petitioners are liable for the addition to tax under
Some of the facts have been stipulated. The stipulations of fact and the facts drawn from stipulated exhibits are incorporated herein, and we find those facts accordingly. Petitioners resided in New York when the petition was timely filed. Absent a stipulation to the contrary, an appeal of this case would lie in the Court of Appeals for the Second Circuit.
Petitioners, Bradley C. Reifler and Nancy Reifler, have been married since 1988. Throughout the marriage petitioners developed certain procedures for handling family*212 financial, business, and tax matters. Mr. Reifler had significant business experience. After graduating from college he started a commodity trading firm, Reifler Trading Group, and later a sell-side broker dealer, Pali Capital, offering differentiated packaging of investment strategies for the hedge fund community. Mrs. Reifler was also involved in several businesses, including Sky Blue Farm, Inc., and Studio U, LLC. Petitioners retained a certified public accountant, David Meyrowitz, and his firm at the time, Levine, Levine & Meyrowitz, to prepare their Federal and State income tax returns. Mr. Meyrowitz assisted petitioners in their tax return preparation for many years both before and after 2000.
*203 Mr. Meyrowitz, on petitioners' behalf, requested and obtained from respondent extensions of time to file their 2000 joint Federal income tax return (original return or original 2000 return) until October 15, 2001.
Consistent with petitioners' practice since their marriage, the original 2000 return shows petitioners' selection of "married filing jointly" as their filing status and includes income from activities in which both participated. Mrs. Reifler testified that she relied on Mr. Reifler*213 to handle the family financial and tax matters, including preparation and filing of tax returns. Mrs. Reifler also testified that she intended to file a joint return for 2000.
Petitioners followed their usual procedures for preparing and signing the original 2000 return. Mr. Meyrowitz signed and dated the original 2000 return and sent it to petitioners on or about October 9, 2001. Mr. Reifler signed the original 2000 return, took it home, and placed it in a bin where he usually placed documents that required his spouse's signature. The next morning Mr. Reifler took the original 2000 return back to his office and mailed it to respondent's Andover, Massachusetts, Service Center (Andover Service Center). The reason Mrs. Reifler did not sign the original return is not known. There was no date next to Mr. Reifler's signature. Mr. Reifler testified he does not recall checking for his wife's signature before mailing the original 2000 return.
*204 Sometime after the Andover Service Center received the original 2000 return, respondent returned it to petitioners. The Internal Revenue Manual (IRM) requires the examining agent to perform certain actions before sending a return back to a taxpayer.
Petitioners claim they received a date-stamped original 2000 return with some red ink marks on it but did not receive any attached correspondence. The date on the stamp was October 15, 2001. Neither Mr. Reifler nor Mr. Meyrowitz could recall discussing any correspondence related to the original return.4
Mr. Reifler explained that he was not alarmed to have received back the original tax return with some red ink marks on it because he requested copies of his tax returns from time to time for various business reasons. Specifically, Mr. Reifler claimed that near the end of 2001 he needed a copy of his tax return to submit to the European American Bank (EURAM) because he was joining the EURAM's board of directors as of January 2002.
*205 Petitioners did*215 not subsequently send the original return back to the Andover Service Center.
On July 29, 2002, respondent issued a taxpayer delinquency notice to petitioners, informing them that he had not received their 2000 Federal income tax return. On August 25, 2002, after petitioners discussed the delinquency notice with Mr. Meyrowitz, they signed a second Form 1040, U.S. Individual Income Tax Return, and supporting schedules, stated August 25, 2002, as the date of signing, and sent it to the Andover Service Center (second 2000 return). Petitioners maintain that this was merely a copy of the original return, but they did not include any correspondence with the second 2000 return explaining their position to respondent. As a result, respondent treated the second 2000 return as petitioners' original Federal income tax return for 2000 with a filing date of September 2, 2002.
On April 29, 2004, respondent commenced an audit of petitioners' returns for the years 2000 through 2005. Petitioners consented several times to extensions of the period of limitations with respect to the 2000 tax year.
*206 On July 1, 2005,*216 Mr. Meyrowitz sent a letter to respondent notifying him that petitioners considered the original 2000 return as the return triggering the running of the period of limitations for the 2000 tax year. This was the first time the issue of the original 2000 return's submission date and validity came up.5
Respondent issued the notice of deficiency to petitioners on May 17, 2010, before the expiration of the last extension.
Petitioners had possession and control of the original 2000 return at all times before trial. At trial petitioners introduced the original return and signature pages into evidence as Exhibits 16-P and 17-P. Mr. Reifler admitted in an affidavit dated November 2, 2011, that he had made certain alterations to the original return. The alterations included covering red ink marks on the original return in opaquing liquid, making a copy of page 2, and asking Mrs. Reifler to sign the copy of page 2. Mr. Reifler separately kept the original of page 2 and attached a copy signed by Mrs. Reifler*217 to the rest of the return that had been sent back to petitioners by the Andover Service Center. Mr. Reifler likely made the *207 alterations shortly after the Andover Service Center sent the original 2000 return back to him.6
In general, the taxpayer bears the burden of proof except as otherwise provided by statute or determined by the Court.
This case is about taxpayers who filed a purported joint Federal income tax return lacking*218 the signature of one of them.
*208
Signatures on a tax return not only verify that a return has indeed been filed by the person indicated on the front page of a Form 1040 but also certify that all the statements in the tax return are made under penalty of perjury and are true, correct, and complete to the best of the taxpayer's knowledge.
Petitioners advance two theories in support of their claim that the original 2000 return was a valid and timely filed joint Federal income tax return despite the lack of Mrs. Reifler's signature.9The first theory, the so-called substantial compliance doctrine, stands for the idea that a tax return need not be perfect to be valid.
Petitioners contend that caselaw has significantly changed the apparently compulsory language of the Code with respect to compliance with tax return requirements. Indeed, in
Yet petitioners' reliance on
Petitioners argue that under the substantial compliance doctrine their original 2000 return was valid because it met all of*223 the requirements of the
The general rule in the Second Circuit is that an unsigned return does not start the running of the period of limitations.
An invalid return remains invalid even if the IRS accepts and processes it.
As this Court noted in
Petitioners point to two cases,
In
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. It *216 would also*227 be contrary to the principles stated in
The substantial compliance doctrine indeed allows a taxpayer to file a return that may contain some inaccuracies and mistakes as long as an honest and reasonable attempt to comply with the tax law requirements has been made. But, as clarified in
In their second argument in support of the validity*228 of the original 2000 return, petitioners contend that "[i]t is well-established by a long line of cases that a joint Form 1040 filed with the signature of only one spouse is valid if both the husband and wife intended to file a joint return." (Citations omitted.) Petitioners *217 argue that they are entitled to a finding that the original 2000 return is valid without the signature of Mrs. Reifler under the tacit consent doctrine because they intended to file a joint tax return. Mrs. Reifler stated in an affidavit dated May 16, 2012, that she relied on her husband to handle the family tax matters and acquiesced to the filing of the original 2000 return. Respondent argues that the tacit consent doctrine is relevant only to the issue of determining whether the spouses are jointly and severally liable for the income tax return that they intended to file jointly but has no bearing on the question of whether a Form 1040 signed by one spouse but not the other is an income tax return within the meaning of
We find petitioners' arguments unpersuasive. At the outset of our discussion of the tacit consent doctrine, we note that courts generally apply this doctrine when one spouse signs a joint*229 return for both spouses and it is later shown that the other spouse has tacitly consented to the joint return filing.
The facts in the cases that petitioners cite are distinguishable from their own situation. In
Another case from the Court of Appeals for the Second Circuit that petitioners cite,
In
We observe the sincerity, candor, and demeanor of each witness to evaluate his testimony and to assign weight thereto for the purpose of finding disputed facts.
Going back to the facts of the current case, Mrs. Reifler testified that she trusted her husband to take care of the financial and tax matters and intended to file a joint return with him for the 2000 tax year. Yet there is no adequate explanation in the record as to why the regular procedures petitioners had followed for many years--and which had worked well for them before and after 2000--did not work for the 2000 tax year. It is also not clear from the record why Mr. Reifler, a sophisticated businessman,*233 did not check for Mrs. Reifler's signature before mailing in the original 2000 return. Petitioners do not recall whether they discussed the original 2000 return or whether Mr. Reifler ever asked Mrs. Reifler to sign it.
We also find that the subsequent alterations Mr. Reifler made to the original 2000 return, including making a copy of the second page and asking Mrs. Reifler to sign it, indicate that he was aware of the defect in the original 2000 return and its potential significance. We note that petitioners made these alterations soon after receiving the original 2000 return back from the Andover Service Center. *222 The record, however, does not provide any explanation as to why Mr. Reifler did not ask Mrs. Reifler to put her signature on page 2 of the original 2000 return and instead asked her to sign a copy. There is also no explanation why petitioners did not produce the original 2000 return in response to the notice of delinquency in 2002. Instead, petitioners executed a clean return, dated it, and sent it to the Andover Service Center.
In sum, petitioners' actions after they received the original 2000 return back from the Andover Service Center seem inconsistent and illogical in*234 the light of their later testimony that in October 2001 they desired and intended to file a joint return.13
We find that the facts surrounding both the signing and submitting of the original 2000 return contain too many blanks to preclude the existence of alternative explanations as to the absence of Mrs. Reifler's signature on the original 2000 return. Silence does not necessarily mean "yes". There may be numerous reasons a spouse fails to sign a joint tax return, ranging from oversight *223 to express refusal to file a joint return. We are reluctant to extend the reasoning from the cases discussing valid on their face tax returns purportedly signed by both taxpayers to situations when one of the required signatures is missing. This would place a high administrative*235 burden both on the Commissioner and on the courts, making us play the guessing game every time we see a purported joint return signed by only one spouse. Although some evidence may weigh in favor of finding that petitioners intended to file a joint return,14 we find it insufficient in the light of gaps in the record and subsequent treatment of the original 2000 return by petitioners.
Extending the application of the tacit consent doctrine to cases such as the current case has the potential of creating an exception that would swallow the rule. We believe sufficient administrative mechanisms are already in place to deal with such situations. Existing procedures described in the regulations and the IRM provide how to handle documents when one of two required signatures is missing. At the very least, a nonsigning spouse who did not intend to file a joint return may be alerted that something*236 is wrong. Existing regulations also provide an option for *224 more "traditional" families like the Reiflers.15 If a spouse wants to delegate his or her authority to sign a joint tax return to another spouse,
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*237 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.
We hold that petitioners did not timely file a valid joint tax return on October 15, 2001, because the return filed with the Andover Service Center lacked one of the essential--and easiest to satisfy--requirements for a valid joint tax return, the signatures of both spouses. Petitioners' reliance on the substantial compliance and tacit consent doctrines is misplaced, as neither doctrine supplants or waives the requirement for a signature under penalty of perjury contained in the Code, the regulations, and almost a century of caselaw. It is in the province of Congress to promulgate new laws, and it is in the province of the Secretary to adopt new regulations implementing provisions of the Code. Should Congress or the Secretary deem one signature to be sufficient for a valid joint tax return, this Court will follow the new rule. Until then, signatures of both spouses will be required for a valid joint tax return.
"Reasonable cause" requires the taxpayer to demonstrate that he exercised ordinary business care and prudence and nevertheless was unable to file his or her Federal income tax return by the due date.
Petitioners maintain they acted with reasonable cause and without willful neglect with respect to the preparation and filing of their joint return for the 2000 tax year. Petitioners indeed followed all their regular procedures in preparing and mailing the original 2000 return. Our decision in this case, however, hinges on whether petitioners exercised ordinary business care and prudence in handling the original 2000 return when the Andover Service Center sent it back.
Petitioners maintain they did not receive any correspondence attached to the original 2000 return explaining what they needed to fix in their tax return.*239 Neither petitioners nor their accountant, Mr. Meyrowitz, have any memory of receiving or discussing any correspondence related to the original 2000 return. Petitioners and Mr. Meyrowitz testified that the first time they learned about respondent's having *227 no record of their 2000 income tax return filing was when they received a notice of delinquency in 2002.
Thereafter, Mr. Meyrowitz printed out a copy of petitioners' 2000 return from his files, signed it, and instructed petitioners to sign and mail it to the Andover Service Center. Petitioners mailed this second 2000 return on or about August 25, 2002. Neither petitioners nor Mr. Meyrowitz prepared a cover letter to accompany the return and explain petitioners' position.
Respondent argues he is entitled to a presumption of administrative regularity.
Petitioners contend that the burden of production is on respondent on the*240 issue of whether there was any correspondence attached to the original 2000 return sent back to them by the Andover Service Center. Respondent maintains that, under the presumption, we should find that the Andover Service Center properly *228 followed the procedures set out in
We do not need to address the presumption of administrative regularity here. Regardless of whether the Andover Service Center actually followed the established procedures in this case, it is difficult, if not impossible, to conclude that Mr. Reifler, a sophisticated businessman, acted with ordinary business care and prudence when he failed to follow up with the IRS or his accountant, Mr. Meyrowitz, as to why the original 2000 return was sent back to him with some red ink marks on it. We find Mr. Reifler's testimony on this issue unpersuasive.16 Petitioners have been filing tax returns for many years. Petitioners never previously received the originals of their tax returns back. A person exercising ordinary business care and prudence would have inquired as to the reason he or she received a tax return*241 back. There is no evidence on the record showing that *229 petitioners attempted to consult with anybody until they received a notice of delinquency from respondent in 2002.
As we discussed above, subsequent alterations to the original 2000 tax return indicate petitioners knew Mrs. Reifler's signature was missing. These alterations also indicate petitioners understood that a tax return not signed by one of the spouses would be insufficient for some business purposes. Yet petitioners chose to do nothing until they received the delinquency notice. Petitioners also chose not to provide respondent with a copy of the original 2000 return when they sent the second 2000 return to the Andover Service Center. In our view, such conduct*242 does not meet the standard of ordinary business care and prudence.
Because petitioners did not demonstrate that their failure to timely file a Federal income tax return for the 2000 tax year was due to reasonable cause and not willful neglect, we hold that petitioners are liable for the addition to tax under
We have considered all of the arguments that petitioners made, and to the extent not discussed above, conclude that those arguments not discussed herein are irrelevant, moot, or without merit. We have considered respondent's arguments only to the extent stated herein.
*230 To reflect the foregoing and concessions by the parties,
1. Unless otherwise indicated, section references are to the Internal Revenue Code (Code) in effect for the years in issue. Rule references are to the Tax Court Rules of Practice and Procedure, and dollar amounts are rounded to the nearest dollar.↩
2. Petitioners raised two additional issues in the petition: (1) the expiration of the period of limitations on assessment for the 2000 through 2005 tax years, and (2) petitioner Nancy Reifler's claim for relief from joint and several liability under
3. We note that the issue of the validity of petitioners' 2000 Federal income tax return has been discussed in
4. At trial Mr. Reifler testified that he relied heavily on Mr. Meyrowitz' tax expertise. Petitioners usually consulted with Mr. Meyrowitz when it came to correspondence with tax authorities.↩
5. The Court held in
6. The alleged reason for making the alterations is that Mr. Reifler needed "a return that included my wife's signature, for some purpose having nothing to do with the IRS. It may have been to secure a line of credit or for purposes of business financing, or for some other business reason."↩
7. There are two exceptions to this general rule. First, a spouse may sign a return on behalf of the other spouse if he or she acts as an agent of a spouse and complies with the requirements of
8. We take judicial notice of these instructions pursuant to
9. At trial the Court raised the question whether the October 2001 return might be a valid separate return of Mr. Reifler. Petitioners' counsel referred to this colloquy in their opening brief but did not pursue this possibility (nor explain the consequence, if any, on petitioners' liability for the addition to tax under
10.
11. The IRS has extensive procedures for handling unsigned tax returns.
12. We note that such returns would also be sufficient under the
13. Both the original return and the second 2000 return showed a net loss of over $1 million. Petitioners did not claim a refund, but it was still in their best interest to perfect the return and mail it back to the Andover Service Center as soon as possible. Yet petitioners' lack of action in this respect leaves us with too many unanswered questions. Under the circumstances, we cannot take petitioners' self-serving testimony at face value.↩
14. Mrs. Reifler affirmed several times that she intended to file a joint tax return for 2000, as in prior and subsequent years. The return included information on businesses Mrs. Reifler was actively involved in (Sky Blue Farm, Inc., and Studio U, LLC). Mrs. Reifler did not file a separate return for 2000.↩
15. We use the word "traditional" in the sense petitioners used it in their pleadings to describe their family relationship.↩
16. Mr. Reifler testified that he may have requested a copy of the tax return from the IRS because he needed to submit it to be appointed to the board of directors of EURAM. There is no corroborating evidence on this issue besides Mr. Reifler's testimony. In a supplemental affidavit dated November 2, 2011, Mr. Reifler claimed he may have needed a "completely signed return" to secure a line of credit or for purposes of business financing or for some other business reason.↩
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