Rejecting Returns That Meet Beard

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The IRS rejects a lot of e-filed returns for reasons that seemingly have nothing to do with whether the taxpayer filed a valid return. (see these posts) It has done this for years, decades even.  This disparity between the way it treats e-filed returns and the way it treats returns mailed by snail mail catches up with it in Fowler v. Commissioner, 155 T.C. No. 7 (2020) a fully reviewed opinion with no concurrences or dissents (see also Bryan Camp’s informative post on Fowler from a different perspective). I don’t know if the Fowler case will serve as a wake-up call to the IRS to change its practices of rejecting returns with issues having nothing to do with whether the taxpayer actually filed a return, but it should.  The opinion seems so clearly correct that I wonder if, even given the administrative importance of the issue, the IRS will bother to appeal.  It would be interesting to be a fly on the wall in the Room of Lies when the IRS tries to sell this case to DOJ to appeal, if it does.


Mr. Fowler requested an automatic extension to file his 2013 return extending the due date from April 15 to October 15, 2014.  Pursuant to the extension, Mr. Fowler timely e-filed his 2013 return; however, the IRS rejected his return because he failed to attach an IP-PIN, something the IRS wants some taxpayers who have had issues with identity theft to file with their return.  When the e-filed return rejected, Mr. Fowler’s preparer created a paper return which Mr. Fowler signed using DocuSign and filed on October 28.  Although the preparer received a signed certified mail slip indicating that the IRS received the paper return, in December, 2014, the IRS notified Mr. Fowler that he had not filed a return.

A third attempt to file the return occurred in April of 2015 and this attempt succeeded.  For some reason, the IRS waited to send Mr. Fowler a statutory notice of deficiency until April of 2018.  The notice date fell within three years of the third return but outside the three years of the first two documents Mr. Fowler sent in as returns for 2013.  He filed a summary judgment motion arguing that the IRS blew the statute of limitations by not sending the notice with three years of the originally filed or the second return.  The IRS filed a cross motion for summary judgment on the statute of limitations issue, arguing that the failure to include the IP PIN with the original return caused it to fail the Beard test.  Similarly, it argued that signing the paper return via DocuSign caused the second return to fail the Beard test, making the third return the original filing of a return for 2013 and the timing of the notice of deficiency appropriate.

To get to the bottom of the case the Tax Court analyzed the facts using the Beard test – a test developed in the 1980s before e-filing existed.  The problem the IRS has stems from its effort to shoehorn a post-Beard practice into the language of Beard.  As it developed and refined e-filing, it let programmers define acceptable e-filing, but the programmers did not keep their eye on the Beard test because it has rather elegant simplicity designed to provide guidance in a different time.  Either by statute, regulation or an updated version of Beard, the IRS must change the underlying law if it wants to stick with the tests it seeks to impose on e-filing that go well beyond Beard’s requirements.  The Tax Court judges unanimously, and correctly, determine that IRS practices in rejecting e-filed returns for matters not covered by Beard’s test fail. 

The Tax Court said it was not going to bother looking at the second return because it could decide the case based on the first one. Let’s look at the Beard test and how it lines up with rejecting a return for failure to include an IP PIN. The Court noted “We first consider whether the October 15 submission was a “required return” and “properly filed”.”

It looked at the concept of required return and explained what the Beard test requires:

The Beard test requires that: (1) the document purport to be a return and provide sufficient data to calculate tax liability, (2) the taxpayer make an honest and reasonable attempt to satisfy the requirements of the tax law, and (3) the taxpayer execute the document under penalties of perjury.

Here, the original 1040 purported to be a return and provided sufficient data to calculate the liability. The IRS did not object to this conclusion.

Having determined that the document met the first test, the Court moved on to the second test which it described as follows:

We next consider whether petitioner made an honest and reasonable attempt to comply with the tax law. A taxpayer need not file a perfect return to start the limitations period.

The Court determined that Mr. Fowler’s document met this test because he did try to file a correct return that complied with the tax law. The Court notes that the only difference between the original return and the one filed in April was the addition of the IP PIN on the April return. It further noted that the IRS did not file any response that would lead the Court to the conclusion that the original return did not provide an honest and reasonable attempt to comply with tax law.

Having concluded the taxpayer met the first two tests it moved onto the test involving the need to sign the return under penalties of perjury. On this point the IRS strenuously objected that Mr. Fowler complied. To win, the IRS had to argue that including the IP PIN constituted an integral part of his signature. The problem with this argument, or at least a major problem with this argument, is that even the IRS own descriptions don’t say that. Here’s what the Court says on this subject:

Under the heading “IRS e-file: Electronic Return Signatures!”, the instructions state that the taxpayer “must sign the return electronically using a personal identification number (PIN)”, either a Self-Select PIN or a Practitioner PIN. 2013 Form 1040 Instructions, at 73 (emphasis added). Here, Mr. Call included a Practitioner PIN on petitioner’s efiled return in accordance with the instructions.
Notwithstanding the foregoing instructions, respondent now argues that the IP PIN is part of the signature requirement. Because we find no IRS guidance characterizing an IP PIN as a signature, we disagree.

The IRS instructions for electronic filing explicitly required Mr. Fowler to use a PIN and his practitioner to use a PIN but did not require that he use the IP PIN. Because the programmers at the IRS decided that certain individuals must submit an IP PIN so the IRS can satisfy itself that the person is who they say they are, the programmers added the additional requirement regarding the IP PIN just as they have added other requirements which do not conform to the Beard test. The Court noted that the IRS regularly rejects returns that meet the Beard test:

the Modernized e-File (MeF) system, which the IRS uses to process
efiled returns, see infra Part II.B, rejects returns for numerous errors that may not cause a return to fail the Beard test.

In a footnote to this sentence the Court also noted that although the Internal Revenue Manual says that the IRS should reject e-filed returns failing to contain a IP PIN when the IRS had sent one to the taxpayer, the same provision does not provide for the IRS to return the paper filed return with the same problem. Because the IRS provided no authority for the fact that its programmers injected into the system a requirement that the taxpayer must attach the IP PIN, the Court found that the original return Mr. Fowler filed constituted a valid return, making the notice of deficiency one sent after the statute of limitations had expired.

The Court went on to explain why an IP PIN did not need to serve as the only line of defense here to avoid a problem of validating Mr. Fowler’s identity. It also provided some history on e-filing to show that his return went into the IRS system the way it should.

Assuming Fowler stands, what does it mean? It can mean that the IRS completely loses a case. as in this situation where the notice of deficiency bears a date more than three years after the valid initial filing. The Fowler case will not stand alone in reaching this result for certain taxpayers, but the more common situation will involve penalties. The IRS will seek to impose late filing penalties on electronic filers like Mr. Fowler, whose electronically filed returns fail to meet the rules created by the IRS programmers. We discussed the issue of the disconnect between the electronic filing rules and paper rules in this regard several times in the last few years, and the ABA Tax Section tried to get the IRS to react to the problem at that time.

The problem here results from the IRS using different rules for electronically filed returns than the case law allows. It deserved to lose. It needs to take a hard look at how to treat taxpayers equally in the electronic and paper context. If it persists in wanting more protection or more tests for a valid electronic return than Beard requires, it needs to find some authority for that. The Tax Court got it right that the emperor has no clothes on this issue.


  1. Hi Keith, very strong post, from the taxpayer perspective. I blogged the case from a different perspective yesterday on TaxProfBlog here: I would be interested to read why you think “an IP PIN did not need to serve as the only line of defense here to avoid a problem of validating Mr. Fowler’s identity.” I just don’t know enough about IRS returns processing to know how the IRS is supposed to avoid processing fraudster returns if it must accept as valid a return without an IP PIN. I do not see it as a signature requirement. It’s a necessary data element. But, again, I would like to see your thoughts on that point.

    • I would focus on how the taxpayer receives the Identity Protection PIN. From what I have seen, it is just mailed in an IRS envelope to the last known address. Sometimes it is undeliverable, sometimes it is unopened because taxpayers think it is another bill, and sometimes it may be purloined by the same identity thief who caused the problem in the first place. In any case, a major point this post makes is that paper returns are not rejected when the IP PIN is not included.

      Does IRS reject e-filed returns with a balance due, even when payment is made when they are filed? Are the payments rejected also? I don’t know. The protection here is not so much for the taxpayer, as for the government that is concerned with issuing a refund to the wrong person. In those cases, it could “freeze” the refund until the taxpayer supplied the IP PIN or otherwise confirmed identity. I think that is done with many, if not all paper returns with missing IP PIN’s.

  2. Robert Kantowitz says

    1. Has anything similar happened with mis-identification of online tax payments via TurboTax etc., leading to the IRS’s treating that amount has not having been timely paid?

    2. Losing a case here & there will not be enough to get the IRS to stop harassing taxpayers. How many will receive a demand and just pay it rather than fighting it; ow many will just see their refunds or carryover balances reduced? The statute of limitations is an affirmative defense, so the taxpayer has to go to court and fight. Congress does not have the gumption to fix this, but the only way to rein in unaccountable bureaucrats is to provide that (i) if tax taxpayer has to go to court to vindicate its rights and the IRS loses because the statute of limitations has run, the IRS owes the taxpayer 3x the entire amount of the tax for the year and (ii) any government attorney who filed the IRS’s papers in court has prescriptively violated FRCP 11(b)(1) and the court should issue an order to show cause under FRCP 11(c).

    3. This is not the first time that the IRS has tried to give itself an advantage by inventing procedures. In the late 70s & early 80s there was litigation over whether they could get banks to send them additional copies of 1099s. The law was that the IRS was not entitled to harass the banks for that if they already had the 1099, and a heard an IRS lawyer assert in an appellate court oral argument that the IRS does not have them because when they come in they may just go down a chute into a warehouse and can never be retrieved. I believe that the EZ form for PPP forgiveness includes a certification that varies from what the law actually requires. And differential treatment has occurred before too. When I invented cross-border preferred stock issued by UK companies to US investors in the late 80s, I realized that the US shareholder’s eligibility certification for the “ACT credit” that one executed by signing the back of a paper dividend check was less comprehensive that the one that one had to satisfy if the shares were held in street name and the dividends came by electronic deposit.

  3. The 10/28 return was either lost/misplaced by the IRS after delivery, which happens, or there was a “wet ink” issue with the signature, because I’m not sure what the difference is between a documate signed return or a photocopy or fax of a signed return, both of which it is my understanding the IRS will not accept… and the instructions for those who cannot retrieve a lost IPPIN are to mail in the paper return without it, since some people do not have the credit history to verify their identity to retrieve online and it is IRS policy not to mail a replacement IPPIN to a new address… it would have been much easier for the court, if not perhaps for the documate signature issue, to say the 10/28 return was legit and that it didn’t need to decide the 10/15 e-filed return… but there are now a ton of returns that have been filed according to the court but not according to he IRS….

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