Questioning the Portal: Why the Beard Test Matters

0 Flares Filament.io 0 Flares ×

A few months ago, Nina Olson wrote What is this thing called portal?, in which she analyzed the IRS non-filer portal under the Beard test for determining when a submission to the IRS is considered a tax return.

After that post was published, the IRS confirmed what the screenshots in Nina’s post show – that functionally, the portal e-files a 2019 federal income tax return reporting $1 of interest income. Because many people who used the portal actually should have filed a full tax return instead, the IRS created a process for people to file their real 2019 tax return and signal to the IRS that they had mistakenly used the portal, via a submission which the IRS calls an “Amended EIP Return”. The IRS website states:

Tax Professionals please note that returns labeled “Amended EIP Return” will be processed as superseding returns if submitted before July 15 or, with a valid extension, before Oct. 15.

So we know that practically, the IRS computer system is treating a portal submission as a 2019 tax return. But is the legal question settled? A recent post by Gina Ahn on the ABA Tax Section’s listserv for the Pro Bono & Tax Clinics community highlights one taxpayer’s predicament and reminds us why the legal question matters.

read more...

The facts presented are roughly as follows:

A domestic violence survivor fled her husband to live in a shelter, where among other services she connected with an LITC with the goal of seeking innocent spouse relief for her 2018 joint tax debt. The client’s husband runs a sole proprietorship and the 2018 joint liability consists of his unpaid self-employment taxes.

The husband and wife are both in touch with the tax professional who prepared their past joint tax returns and had been hired to prepare their 2019 tax returns. The spouses had arranged with the preparer to file Married Filing Separate returns for both of them for 2019.

At some point after the CARES Act passed, the tax preparer told the spouses that he could use the nonfiler portal for them to “get the stimulus checks faster,” and they all agreed he should do this.

The preparer later tried to e-file the wife’s MFS tax return for 2019, but the IRS rejected the e-file submission as a duplicate, due to the previous nonfiler portal submission.

The LITC attorney learns these facts in August. 

What advice would you give?

Before we go further, remember that Treasury Regulation § 1.6013-1(a)(1) provides:

For any taxable year with respect to which a joint return has been filed, separate returns shall not be made by the spouses after the time for filing the return of either has expired.

The IRS interprets “the time for filing the return” to mean the due date of the return without regard to any extension of time to file. (See e.g. PMTA 2020-17.) So, although we do not know if an extension was filed for either spouse, it probably does not matter.

If a valid joint return was filed before July 15, the spouses in our scenario are stuck with a joint tax return for 2019. They would need to file an amended return if they wanted to report their actual 2019 income and tax liability. This likely means that at some point down the road, the wife will be requesting innocent spouse relief from the husband’s 2019 self-employment tax liability.

However, if the portal submission was not a joint return, then the spouses are free to file separate returns for 2019 as they had originally planned. These would need to be submitted on paper, but they would be legally valid separate returns.

Was the Portal Filing a Valid Joint Return?

As Nina explained, “In Beard v. Commissioner, the Tax Court outlined the basic requirements of what constitutes a valid return for statute of limitations purposes:

First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury.”

Nina then applied the Beard test to the portal, and concluded that the test is probably met. “If it walks like a duck, and quacks like a duck, maybe it actually is a duck.” I recommend viewing the screenshots in her post to see what she means.

If the nonfiler portal could be a return when completed by the taxpayer, does it still qualify as a return given that the taxpayers here never laid eyes on the portal or their purported joint return?

It’s worth mentioning that the nonfiler portal is not set up for tax preparers or any other assister to use on behalf of an individual. There is no option to enter your PTIN. In fact, the Form 1040 generated by the portal specifically says “Not for use by paid preparer” and “self-prepared” on the second page.

It seems to me that the analysis should come out differently in this case, than in Nina’s hypothetical case of a taxpayer using the portal for himself. The wife (and maybe also the husband) in our scenario always intended to file a separate tax return for 2019. She did not know that allowing the tax preparer to use the portal meant that, practically speaking in the e-filing system of the IRS, she was filing a joint 2019 tax return. She did not use the portal herself, see the jurat or the final 1040 that the portal generated, or have any basis to question whether the preparer’s suggestion was appropriate.

A tax administrator might not like that subjective analysis, but it’s not too far off from the analysis employed when one spouse contests the joint status of a return filed by the other. For example, in a 2017 summary opinion Judge Wherry explained:

Whether an income tax return is a joint return or a separate return of the other spouse is a question of fact. Harrington v. Commissioner, at *8 (citing Heim v. Commissioner, 27 T.C. 270 (1956), aff’d, 251 F.2d 44 (8th Cir. 1958)). The focus of our inquiry is whether [the nonsigning spouse] intended to file and be bound by the return in question. See Shea v. Commissioner, 780 F.2d 561 (6th Cir. 1986), aff’g in part, rev’g in part T.C. Memo. 1984-310.

The courts have considered various factors in determining whether a nonsigning spouse intended to file a joint return, including (1) whether the returns were prepared pursuant to an established practice of preparing and filing a joint return, (2) whether the nonsigning spouse failed to object to the filing of a joint return, (3) whether an affirmative act was taken indicating an intention to file other than jointly, (4) whether one spouse entirely relied on the other spouse to file returns, (5) whether the spouse examined returns presented for a signature, (6) whether separate returns were filed, (7) whether the returns included the income and deductions of the nonsigning spouse, and (8) and whether the nonsigning spouse was aware of the contents of the purported returns. See, e.g., Estate of Campbell v. Commissioner, 56 T.C. at 12-13; Howell v. Commissioner, 10 T.C. 859 (1948), aff’d per curiam, 175 F.2d 240 (6th Cir. 1949); Boyle v. Commissioner, T.C. Memo. 1994-294; Evans v. Commissioner, T.C. Memo. 1982- 700; Crew v. Commissioner, T.C. Memo. 1982-535.

Here, the tax preparer essentially played the role of the signing spouse. The tax preparer in this case should have known better than to use the portal for taxpayers who had 2019 filing requirements. We do not have enough facts to understand why the preparer thought this would cause the EIP to arrive sooner.

This case also highlights another pitfall of the nonfiler portal – the only filing statuses allowed are Single and Married Filing Jointly. If Married Filing Separately had been available, this taxpayer’s dilemma might have been avoided.

About Christine Speidel

Christine Speidel is Assistant Professor and Director of the Federal Tax Clinic at Villanova University Charles Widger School of Law. Prior to her appointment at Villanova she practiced law at Vermont Legal Aid, Inc. At Vermont Legal Aid Christine directed the Vermont Low-Income Taxpayer Clinic and was a staff attorney for Vermont Legal Aid's Office of the Health Care Advocate.

Comments

  1. Norman Diamond says

    “What advice would you give?”

    Submit separate returns on paper and tell the court that neither spouse submitted nor consented to submission of a joint return.

    (Filing is a different matter. The IRS can unfile a return that it previously filed. The DOJ and courts can unfile a return that the IRS intended to keep filed.)

  2. Bob Kamman says

    Maybe it does matter if an extension was filed. Or maybe it’s just another example of how we can’t rely on ephemeral IRS online advice. The IRS website on “Amended EIP Returns” provides this advice:

    “Tax Professionals please note that returns labeled ‘Amended EIP Return’ will be processed as superseding returns if submitted before July 15 or, with a valid extension, before Oct. 15.”

    https://www.irs.gov/newsroom/amended-eip-return

Comment Policy: While we all have years of experience as practitioners and attorneys, and while Keith and Les have taught for many years, we think our work is better when we generate input from others. That is one of the reasons we solicit guest posts (and also because of the time it takes to write what we think are high quality posts). Involvement from others makes our site better. That is why we have kept our site open to comments.

If you want to make a public comment, you must identify yourself (using your first and last name) and register by including your email. If you do not, we will remove your comment. In a comment, if you disagree with or intend to criticize someone (such as the poster, another commenter, a party or counsel in a case), you must do so in a respectful manner. We reserve the right to delete comments. If your comment is obnoxious, mean-spirited or violates our sense of decency we will remove the comment. While you have the right to say what you want, you do not have the right to say what you want on our blog.

Speak Your Mind

*