Substantial Compliance Doctrine Will Not Override Return Signing Requirement

In a recent Tax Court case, a joint return was timely filed by a husband and wife. However, the return was filed without the wife signing the return. The IRS rejected the initially filed return and imposed late filing penalties. Note that the late taxes here came to over $5 million (over two tax years), so the penalties involved were very significant.

The taxpayers argued that the substantial compliance doctrine should have protected them from penalty. Under this doctrine, if a return purports to be a return, is sworn to as such…and evinces an honest and genuine endeavor to satisfy the law, it will constitute a return even though it may not have complied with all rules. The problem here was that without the wife’s signature, one of the taxpayers was not signing under penalties of perjury. The Tax Court thus found that the requirement to sign under penalties of perjury was a separate requirement of the law (apart from other return preparation requirements) that was not complied with and was a requirement that must be met for taxpayers seeking to use the substantial compliance doctrine based on U.S. Supreme Court precedent.

The taxpayers noted some cases where a married spouse did not sign the return but the IRS did not challenge timely filing. The Tax Court rejected being bound by this precedent, providing that the IRS concession of an issue in a case does not bind them to deal as generously,  leniently, or erroneously in another case.

The taxpayers also argued the tacit consent doctrine – i.e., that the wife tacitly consented to the joint return filing and that should be enough to have filed timely. The Tax Court noted that this doctrine does allow one spouse to sign a joint return for both spouses if it is shown that the nonsigning spouse tactily consented to the joint filing. Here, however, the husband did not sign for both of them – he only signed for himself. Also, in other tacit consent cases, the Service Center accepted the original return for processing and filing – here, the return was rejected.

There was an odd fact here that the IRS returned the unsigned return to the taxpayers. The taxpayers claimed that no notice came with the return, so they did not know why it was returned. However, there are facts that show that the husband knew at some point soon after receiving the return back from the IRS that his wife did not sign the return, but he never had her sign and resubmit the original return – instead they later signed and submitted another copy after they received a deficiency notice. This knowledge of the failure  and failure to correct it when they received the return back from the IRS may have had a role in the court’s decision against the taxpayers.

Reifler, TC Memo 2015-199