WHEN IS A JOINT RETURN DEEMED TO HAVE BEEN FILED?

The Tax Court decision in Victor A. Edwards v. Commissioner, TC Summary Opinion 2017-52 contains an instructive discussion of the rules applicable to determining whether a valid joint return has been filed. Bear in mind that this is a summary opinion and therefore may not be cited as precedent.  The case analysis may, nonetheless, be helpful.

Victor and Sharon Edwards divorced in 2014, although they lived together until divorced on September 5, 2014. They had adopted two minor children who lived with them while they remained married. Their divorce decree did not address whether they would file a joint income tax return or separate returns. They had e-filed joint returns for past years, both Sharon and Victor having signed the e-file authorizations, presumably on Form 8879, although the form number is not mentioned in the Tax Courts statement of facts. In the past Victor had delivered their tax information to the return preparer who never met or had spoken to Sharon.

On February 8, 2014 Sharon sent Victor a text message proposing that they file a joint return for 2013 and split the anticipated tax refund. They agreed to discuss that possibility when she returned to their shared home that evening.  There is no mention in the opinion whether they ever had that discussion.

On February 12, 2014 Victor filed a joint return for 2013. Sharon did not give her tax information (W-2) to Victor and authorize him to deliver it to the return preparer. Rather, Victor delivered the W-2, which had been mailed to the house, along with his tax information to the return preparer and had her prepare a joint return. Sharon did not sign an e-file authorization for 2013. It is not stated whether Victor forged her signature on the Form 8879, or, if not, how the return preparer submitted the return to IRS without an authorization for Sharon.

The joint return reported wages of $26,777 for Sharon and $3,937 for Victor. IRS issued a joint refund check in the amount of $6,240 which Victor cashed even though most of the tax paid had been withheld from Sharon’s wages.

Victor did not immediately tell Sharon that he had filed a joint return for both of them or that he’d received and cashed the refund. He did not share any of the refund with Sharon.

On April 5, 2014 Sharon sent Victor an additional text message inquiring about whether they should file a joint return for 2013. Victor responded with a cryptic message, “talk to the judge about it.”

On April 15, 2014 Sharon e-filed Form 4868 to automatically extend her 2013 return due date to October 15, 2014.

Throughout the summer divorced attorneys for Victor and Sharon were exchanging messages regarding the divorce proceedings. During that time Sharon believed that Victor had filed a married filing separately return on his own behalf for 2013 on which he had claimed both of the couple’s children as his dependents.

The parties were finally divorced on September 5, 2014.

On October 6, 2014, Sharon filed a married filing separately return for 2013 reporting her W-2 wages and claiming a refund. IRS rejected the return. Sharon wrote to IRS stating that she now believed her former husband had filed a 2013 joint return for her.

She also sent Victor a text message asking whether he’d file a return using her Social Security Number. Victor responded, “you don’t need to file.’

On October 18, 2014 the IRS received a married filing separately return from Sharon in which she claimed both children as dependents. IRS asked Sharon to explain whether she’d filed two returns for 2013 and to indicate her filing status.   She replied to IRS that she’d filed only one return using the filing status of married filing separately but that her former husband, without her knowledge, had filed a joint return using her Social Security number. At the time, she’d also submitted Form 14039, ID Theft Affidavit, to IRS.

IRS then issued a Notice of Deficiency to Victor changing his filing status to married filing separately, removing the children as dependents and removing Sharon’s wages.  The Notice indicated a deficiency of $6,244 and proposed to assess the accuracy related penalty.

Victor petitioned the Tax Court for a redetermination of the deficiency and penalty.

The Court’s decision summarizes the law on determining whether a joint return has been filed. The general rule is that filing of a joint return is an election made by both spouses. Section 6103(a).

A return will be accepted by IRS as a joint return only if both spouses had intended to make the joint return election. Although both spouse must generally sign the joint return, the failure of one spouse to sign does not necessary mean that the return will not be treated as a joint return if IRS, or, the court finds that both spouses intended to make a joint return. A joint return is considered desirable in most cases since rate-splitting results generally in a lower tax liability for the couple. The other side of the coin, however, is that filing a joint return imposes joint and several liability on the spouses, unless one qualifies for relief from joint and several liability under Section 6015 (commonly called “the innocent spouse” rules). Thus, whether a return filed is treated as a joint or separate return is a matter of great consequence and one of the most frequently litigated tax disputes.

Whether a filed return will be treated as a joint return is a question of fact. The Tax Court considers the following factors in deciding these cases:

  • Was the return in question prepared in accordance with an established practice of preparing and filing a joint return?
  • Did the non-signing spouse fail to object to filing of the purported joint return?
  • Did the non-signing spouse perform an affirmative act indicating an intention to file a joint return?
  • Was only one spouse historically relied upon to prepare and see to the filing of the return and, if so, did that spouse handled the filing in question?
  • Did the non-signing spouse examine the return before it was filed?
  • Did the non-signing spouse file a separate return?
  • Did the return include the income and deductions of the non-singing spouse?
  • Was the non-signing spouse aware of the content of the purported joint return?

Generally, the IRS Notice of Deficiency is presumed correct and the taxpayer carries the burden of proving that it is incorrect. Tax Court Rule 142. Thus, the presumption is against the court finding that Sharon intended to file a joint return. Moreover, the petitioner, in this case Victor,  had the overall burden of proof with regard to the above facts. IRC Section 7491 (a). That burden may, however be shifted to IRS, if petitioner introduces credible evidence with regard to an issue.

The Court found that no joint return had been filed as Sharon did not intend to file jointly with Victor for the following reasons:

  • There was no credible testimony from either party, and Victor, not having adduced credible evidence, retained the burden of proof on the issue.
  • The preparer had interfaced only with Victor and never met or spoke to Sharon in earlier years or before e-filing the 2013 purported joint return.
  • Normal practice was not followed in 2013 as Sharon did not sign the e-file authorization form.
  • Sharon did not review the return prior to filing.
  • Sharon continued to message Victor about possibility filing a joint return after Victor had already submitted the purported joint return.
  • Sharon requested her own extension of time to file on April 15, 2014.
  • Sharon was therefore unaware that Victor had filed a purported joint return and likely believed that he had filed a married filing separately return.
  • Finally, Sharon, after the divorce was final, filed her own married filing separately return.

The court did not discuss whether a signature purporting to be Sharon’s appeared on the Form 8879. If a signature had been affixed to the return, the question of a forged signature would be the natural relevant inquiry. If Victor had forged Sharon’s signature, the return could not have been a valid joint return. If there was no spouse’s signature on the Form 8879, then the return preparer was not legally authorized to submit the return, and would have a potential problem with both the IRS Practice Office and malpractice liability or even fraud liability to Sharon, depending on additional facts being found.

RSS ADDITIONAL COMMENTS

  1. Noteworthy, is that the court found that Victor had established reasonable cause for filing the joint return and claiming the kids as dependents and therefore reduced the 20% accuracy related penalty to zero. Victor had argued that he’d informed Sharon of the joint return and had kept the refund of $6,240 to compensate him for her alleged failure to contribute to the joint housing expenses. The court did not find his argument tenable. I find it disingenuous. I believe Victor was pulling a fast-one: filing an early joint return, while the attorneys were still discussing the case, and, telling Sharon, “Go ask the judge,” than later, “You don’t have to file.” In both instances when she’d inquired about filing a joint return, he did not directly respond to her question, but gave her a cute cryptic answer.
  2. Divorce attorneys should make clear early in the proceedings to both clients and opposing counsel that no joint return is to be filed without the express written agreement of the other spouse.
  3. Spouses should be mindful that filing a joint return is a double-edged sword. While some tax may be saved, the non-income producing spouse is subjecting his or her separate assets (even non-marital assets) to possible adverse collection procedures by IRS in the event that tax due on the joint return is not paid or a later audit produces a deficiency. Relying on the innocent spouse escape-hatch can be an expensive mistake. Remember, when you are divorcing your spouse, from in whole or part, a lack of trust, why in the world would you trust a now former spouse, to file a return for you? Be cautious and do not sign a joint return without having the matter reviewed by a divorce-tax attorney who will know how to protect you.

 

© 2017 by Robert S. Steinberg, Esquire
All rights reserved
www.steinbergtaxlaw.com

 

 

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