On April 15th of this year, Donald Rumsfeld performed his civic duty of filing his tax return, and sent the letter found at the bottom of this post to the Service to evidence what we all suspected, he is crotchety. In the letter he states that “I have absolutely no idea whether our tax returns and our tax payments are accurate”, and “I know that I cannot have any confidence that I know what is being requested and therefore cannot and do not know…whether or not [my] tax return is accurate.” He also complained that he was very upset Diagnosis Murder had switched nights. All joking aside, this is a complaint shared by probably millions of Americans. The Code is very complex.
Upon reading the letter, besides being mildly amused, I immediately wondered if the statements by Mr. Rumsfeld could actually have caused his return to be invalid. When you execute your Form 1040, you sign off on a jurat stating, “[u]nder penalties of perjury, I declare that I have examined this return and the accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.” It would seem awful hard to swear something is true and correct if you “have absolutely no idea whether [it is] accurate.” So, did Mr. Rumsfeld’s comments cause him to negate the jurat and fail to timely file his return?
read more...In general, to be a valid return a filed document must 1) be on the proper form, 2) contain sufficient information for the Service to perform the tax calculation, and 3) be properly executed under penalties of perjury. That last bit is pure statute, found in Sections 6061 and 6064. The test was somewhat restated in Beard v. Commissioner, and now referred to as the Beard test, and requires that the document must 1) purport to be a return, 2) be executed under penalty of perjury, 3) contain sufficient data to calculate tax, and 4) represent and honest and reasonable attempt to satisfy the requirements of the tax law.
I doubt the Service would contend that the Rumsfelds filing was not purporting to be a return, or that it did not contain sufficient data. Though, this conjecture is a known unknown, it is helpful to think about the implications of statement as it relates to tax procedure. [Aside: Rumsfeld’s statement at a 2002 Defense Department press conference about known and unknown unknowns has inspired the title of filmmaker Errol Morris’ documentary on Rumsfeld, entitled The Unknown Known.] I assume the Rumsfelds filed the document believing it was an honest and reasonable attempt to satisfy the requirements of the tax law, especially since the letter complains about having to hire and pay an accountant to prepare the return. The question is whether the statement invalidates the execution under penalty of perjury.
The Service and Courts have held that where portions of the jurat are crossed out, or other language has been added to the jurat, that the return is not valid. This can allow failure to file penalties to be imposed, potentially the frivolous return penalty, and can result in no statute of limitations starting to run. For instance, saying you are signing subject to “denial and disclaimer”, but paying the correct amount shown due has resulted in the return not being valid. In a 2005 Revenue Ruling, the Service stated that “striking or otherwise altering the jurat in a manner that negates or casts doubt on its validity invalidates the return.”
One of the somewhat recent important cases in this area is Williams v. Comm’r, where the taxpayer filed two returns, both of which were altered. The first had aspects whited out, and zeroed out all liability –complete garbage. The second showed the amount of tax due, but had an asterisk in the jurat stating “[t]he admitted liability is zero”, and a disclaimer attached stating:
The above named taxpayer respectfully declines to volunteer concerning assessment and payment of any tax balance due on the return or any redetermination of said tax. Be it known that the above said taxpayer, therefore, denies tax liability and does not admit that the stated amount of tax on return is due and collectable.
The Court grappled with whether the disclaimer in that case invalidated the jurat. It reviewed the prior case law, where the Court previously found that crossing out the jurat, or crossing out the “under penalties of perjury” and/or “true, correct, and complete” all result in invalid returns. The next set of cases dealt with adding language to the jurat, and again most invalidated the returns, including “denying” the accuracy of the information. Williams was, however, the first case where the court considered disclaimer language outside of the jurat. The Court held that the disclaimer negated the meaning of the jurat, and altered the Service form.
Williams is an easier case than Rumsfeld’s given the asterisk within the jurat; what is unknown here is whether Rumsfeld similarly asterisked or referred to his disclaimer in his tax return. (another known unknown). All of the cases invalidating returns pertain to tax protestors, who are denying the taxing authority of the federal government or denying that they owe any tax due to frivolous positions. I could not find a particular case on point (likely because the Service would be disinclined to challenge a letter similar to Mr. Rumsfeld’s letter), but I suspect a Court would find that even if there was a reference to the letter in the jurat Mr. Rumsfeld did not intend to amend the jurat, and “to the best of [his] knowledge and belief” the returns were correct, as he had paid a competent professional to provide guidance. Further, he was not denying he owed tax or that the government could impose the tax; he just wanted to be able to understand how his tax bill was computed. Overall, not an unreasonable position, but perhaps a pipedream.
This letter is one more snowflake from Mr. Rumsfeld, and, though this one likely has no legal effect, it adds to the growing public dissatisfaction with the nation’s tax laws. Rather than send it to the IRS though, he probably should have sent it to Congress. IRS takes the Code as is.
About Stephen Olsen
“…to the best of my knowledge and belief, they are true, correct, and complete.” It would seem awful hard to swear something is true and correct if you “have absolutely no idea whether [it is] accurate.”
The clause “to the best of my knowledge and belief” is crucial. Rumsfeld’s point is that best knowledge and belief of a smart sophisticated old man is zero— or perhaps, it is because he is smart and sophisticated he knows he doesn’t know anything, as Socrates said not about tax law but about things in general.
Would it be perjury if someone signed their tax return “to the best my knowledge and belief” but was recklessly ignorant of its contents? My guess would be it is not perjury in that case, but that he would owe civil penalties and perhaps criminal penalties too if the return were inaccurate (but no penalty if it happened to be accurate even though he had no idea whether it was or not).
Stephen: I would argue the letter negates the jurat. Further, if this was a lesser we’ll known figure, I could see the return being flagged. Indeed, I find it personally offensive that someone of his (former) stature would so publicly help undermine our laws.
Here is an example of a situation compatible with Mr. Rumsfeld’s. A taxpayer fills out his return while a tax shelter he was using is being litigated. His lawyers say the the tax shelter will survive with 50% probability. The taxpayer owes either $0 or $100,000 in taxes. He writes down $0 and adds a note to his return saying he, like everybody in the world including the best tax lawyers has absolutely no idea whether it is correct or not.
Of course, he knows it is correct as likely as not, so the question is whether “absolutely no idea” is compatible with that belief. Note, too, that the “expected value” of his tax bill is $50,000, but that is incorrect with 100% probability.
In even worse shape is someone who is told by his lawyer that the shelter only has a 30% chance of surviving litigation. Can he sign his return without criminal perjury?
Even worse, it is a valid return for his wife, in my view, but not for him. Now, the IRS should redo the assessment and recalculate the return as married filing separately and leaving in all the income unless she shows on audit that certain items are not hers. His behavior is deplorable!
1. Why did the author of this article fail to say that Rumsfeld could have filed a 1040A, and told the IRS to figure the taxes for him, under 6014?
2. Why did the author of this article fail to state the Congressional intent underlying the 6702 statute, as-added in the mid 40’s? Congress was very specific about what does and does not qualify as “frivolous”. The author, and obviously all the courts he references, have disregarded the Congressional intent for their own “opinions”. Who is right? Congress or the Courts?
3. Isn’t Rumsfeld in a different “tax class” compared to working class Americans?
As such, don’t his obligations differ, and aren’t his “exemptions and deductions” a bit more complex than that of the working class American who works one or two jobs and collects a paycheck? If so, then why does the author of this article advance the implication that Rumsfeld executed his return under the same circumstantial principles as a working class American?
Confusion, confusion, fear and more fear!
Isn’t that the MO of government?
See the first para “… I am a college graduate and I try hard to make sure our tax returns are accurate”. Maybe graduating college is not relevant, but perhaps the assertion that he tried hard to get it right is.
I believe the sworn return declaration would take precedence over the un-sworn cop-out letter. If Mr. Rumsfeld thought his return was incorrect or did not know whether it was correct or not, he should not have signed the declaration. Despite his claim of ignorance Mr. Rumsfeld could have been helped by his many tax advisors to understand his return at least as much as any lay person can understand a tax return, “to the best of his knowledge and belief.” I don’t believe the declaration means that the filer understands how every number in the return was calculated. It does mean at least that all income easily identified is reported and that all deductions have a basis in fact. Thus, his letter like much of his rhetoric to me seems somewhat disingenuous.
Seriously? There’s no conflict or inconsistency here. The jurat includes the caveat “to the best of my knowledge and belief, they are true, correct, and complete.” The letter merely states that he’s not confident that his level of knowledge and belief gives him any degree of comfort and certainty. The letter is in no way inconsistent with the converse of the jurat; in other words, to the best of the taxpayer’s knowledge, the return is *not* untrue, incorrect, or incomplete. Rummy H8ers gonna H8…