Signature Not Required on Tax Return for Criminal Liability – Houston Tax Attorneys

One of the requirements for a document to be a tax return is that it is signed by the taxpayer under penalties of perjury. Most tax forms that are intended to be tax returns include a declaration at the bottom that includes the penalty of perjury language.

But most tax returns today are filed electronically. Rather than signing with pen and ink, taxpayers sign online or authorize their tax preparers to use electronic signatures or PINs. The transmission or PIN is the signature.

This begs the question, what happens if the taxpayer goes to a tax preparer and there is no evidence that the taxpayer authorized the use of an electronic signature? Can the taxpayer be held liable for errors or omissions on this type of tax return? Can the taxpayer be charged criminally if the tax return is fraudulent? The recent United States v. Uvari, No. 2:18-cr-00253-APG-NJK-1 (9th Cir. Oct. 10, 2024), court case provides an opportunity to consider this question.

Facts & Procedural History

The taxpayer in this case was a professional gambler. He was charged with filing false tax returns. The court opinion does not say how the returns were fraudulent, but chances are good that there was either omitted income or inflated gambling losses.

The tax return at issue in this case was the taxpayer’s 2011 individual income tax return. The tax return was filed electronically by the taxpayer’s CPA. Rather than having the taxpayer’s physical signature, the return contained only a Personal Identification Number (“PIN”) and the CPA’s Electronic Return Originator (or “ERO”) PIN.

During the criminal tax trial, the government did not produce Form 8879, which is typically used to document a taxpayer’s authorization for electronic filing. The taxpayer was convicted and appealed, arguing in part that the government failed to prove he had verified the return under penalties of perjury.

Filing False Returns

Taxpayers are generally required to file income tax returns. If a return is required, it can be a crime to not file the tax return. But if the return is filed and it qualifies as a tax return, it can also be a crime if the tax return is false or fraudulent.

Section 7206 is the applicable criminal statute. It reads as follows:

Any person who: Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.

To prove a criminal violation for filing a false tax return under Section 7206(1), the government has to establish several elements. This includes showing that:

The defendant made and subscribed a return that was incorrect as to a material matter,
The return contained a written declaration that it was made under penalties of perjury,
The defendant did not believe the return to be true and correct, and
The defendant acted willfully with intent to violate the law.

This leads to the question as to what counts as a signature on a tax return?

What Counts as a “Signed” Return?

The traditional physical signature has largely given way to electronic filing. As the IRS agent testified in this case, “the IRS won’t receive a pen and ink signature from you in most cases. It’s always signed by a PIN.”

This can happen in two ways: either the taxpayer inputs their own PIN, or they authorize their tax preparer to enter a PIN on their behalf. In either case, there must be a declaration that the return is being signed under penalties of perjury. Typically, when a tax preparer files electronically on behalf of a taxpayer, they should obtain a signed Form 8879, which documents the taxpayer’s authorization to file electronically and use an electronic signature.

On the civil tax side of it, the courts have previously said that signing the Form 8879 does not transfer the obligation to file to the tax preparer and that the taxpayer still has to verify that the e-Filed return was received by the IRS. Thus, taxpayers cannot avoid the late filing penalty when a tax return is not received due to e-Filing mishaps.

This raises an interesting question: what happens when there is no Form 8879? Was the tax return actually filed if the process required for e-Filing was not followed? In this case, the government did not produce this form. This suggests that the form was never signed by the taxpayer. The absence of Form 8879 might seem to support a defense that the taxpayer never authorized the filing.

The Ninth Circuit court did not agree with this. It concluded that the government need not produce Form 8879 if there is other evidence showing the taxpayer authorized the filing.

Other Evidence of Filing

While there wasn’t a Form 8879 in this case, there was other evidence that the taxpayer authorized the filing. The taxpayer wrote a letter to the IRS in 2017 regarding the 2011 tax return. It stated: “I e-filed the original Form 1040 for 2011 on or about February 1, 2012.” This letter was sent to the IRS by the taxpayer to get the IRS to process the tax return.

The government admitted the letter into evidence in the criminal trial. The court found that a reasonable jury could infer from this statement that the taxpayer either filed the return himself or authorized his accountant to file it. This after-the-fact acknowledgment of the filing was sufficient to establish that the taxpayer had verified the return under penalties of perjury.

Comparison to the Non-Criminal Tax Return Rules

The standards to impose criminal liability are generally higher than those on the civil side. This ruling by the court is consistent with the various court’s holdings as to the non-criminal tax return filing rules, but the court cases are varied based on whether the taxpayer benefits or does not benefit from there being a signature on the tax return.

The tacit consent cases provide an example. These cases involve joint tax returns filed by spouses. The cases generally stand for the proposition that one spouse can bind another spouse by signing their name on a tax return. These cases usually involve situations that benefit the IRS as they are cases where the IRS has more than one taxpayer on the hook if the signature is valid.

The signature requirement in cases involving disputes over civil penalties is similar. Signatures are not always required for liability to attach when it comes to civil penalties. For example, the courts have generally concluded that even the tax preparer’s fraud or bookkeeper’s fraud can in some cases be imputed to the taxpayer. Thus, a taxpayer can even be liable for civil penalties even if they did not have any fraudulent intent. This is apparently true even if the return is e-Filed and not formally signed by the taxpayer.

Compare this to the signature requirements for tax refunds. While a spouse can sign a joint tax return for the other spouse, a tax attorney acting under a valid power of attorney cannot sign a Form 843 refund claim for the taxpayer-client. The rules are a little more nuanced than this for refund cases, however. At least one court has said that if the IRS audits a refund claim and does not require a signature on the return, the IRS can waive the requirement that the taxpayer sign the return by processing the return without a signature. While these refund cases usually benefit taxpayers as if the signature is valid the tax refund can be processed and refunds issued, there are exceptions.

The Takeaway

Signature issues abound when it comes to tax returns. The general rule is that signatures are less important when the facts and circumstances are that not having a signature benefits the taxpayer. When the taxpayer needs a signature to obtain some advantage or benefit, the rules are more strict. That lesson is presented again in this case. As explained by this case, taxpayers cannot always escape criminal liability for false returns if they did not physically sign the tax return. This is true even if the tax preparer failed to obtain Form 8879 signed by the taxpayer. The taxpayer’s own subsequent acknowledgment of the filing can supply the requisite authorization and count as a signature under penalties of perjury.

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Stephan Dorsey

Stephan is the sports journalist for the Maple Grove Report.

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Tax Disputes When You Have Too Many Records – Houston Tax Attorneys

There are quite a few tax court cases involving taxpayers who did not have sufficient records to substantiate their tax positions. This is probably more than half of the cases that end up in the U.S. Tax Court. But what about the opposite situation where there are too many records?

How is one to contend with cases where there are too many records? The IRS auditors usually will not sift through all of the records and they do not help taxpayers organize the records. It takes time to organize voluminous records. By the time the IRS conducts the audit and has the appeals conference, taxpayers still may be in the process of organizing records. The tax matter will probably have moved on to the tax court process by the time the taxpayer has the records in a somewhat manageable form. So, by this point, the question often is how to present the voluminous records to the court. The recent Anderson v. Commissioner, T.C. Memo. 2024-95, provides an opportunity to consider this question.

Facts & Procedural History

The taxpayers in this case were a married couple. Their finances were structured with six companies that were owned by a partnership entity and trust. The amounts all flowed through to the taxpayers individual income tax returns.

The taxpayers did not file income tax returns for 2010-2015. In 2019, the IRS caught wind of the situation and filed “substitute for returns” or SFRs. The taxpayers ended up contesting the balances. The dispute ended up in the U.S. Tax Court. While this was pending, the taxpayers were involved in other litigation. This included a multi-year dispute in state court involving a promissory note.

The taxpayers eventually prepared income tax returns and accounting records for the entities and trusts. The court notes that the accounting records were divided into seven sections, one for each entity and trust, and each included the following:

Summary Statement
Income Statement
Operating Expense Supporting Details
Cash Receipts Journal
Cash Disbursements Journal
Account Register
Analysis of Partners’ Capital Account
Estimated Basis Calculation

The Cash Disbursements Journals list expenditures day by day, referencing a date, a check number or account number, payee (e.g., TelePacific Communications), a description (“phone and internet”), and an amount. The accounting records were over 200 pages long.

In court, the taxpayers explained that they did not produce other supporting records given that the records were voluminous and, for some of the records, they were tied up in the ongoing litigation outside of the tax court litigation.

The General Substantiation Rules

The court begins its opinion by outlining some of the fundamental substantiation rules for tax cases. We won’t get into these rules in depth as we have covered these rules in several other articles (such as substantiating gambling losses, substantiating charitable deductions, substantiating travel expenses, and others). Here are a few key points for substantiating tax positions:

Burden of proof: The taxpayer bears the burden of proving their entitlement to claimed deductions.
Record-keeping requirement: Taxpayers are obligated to maintain records that support their claimed tax deductions.
Cohan rule: Courts have the discretion to estimate the amount of allowable deductions in the absence of perfect records. This principle derives from the landmark case Cohan v. Commissioner.
Reasonable basis for estimation: The courts have generally held that they will only make such estimations if there are at least some records or credible evidence that provide a reasonable basis for doing so.

These rules strike a balance between the need for accurate reporting and the practical challenges taxpayers may face in maintaining flawless records. However, as we’ll see in this case, having too many disorganized records can be just as problematic as having too few.

When There Are Too Many Records

When you really have too many records, it may be tempting to just provide them all to the IRS and let the IRS sort it out.

The courts have generally said that taxpayers cannot “dump” a large amount of records on the IRS. There are numerous court cases that address this situation. We’ll use the United States v. Quebe, 321 F.R.D. 303 (S.D. Ohio 2017) case as an example.

In Quebe, the court addressed the issue of a “document dump” in the context of a tax dispute involving research tax credits. The defendants produced over 340,000 pages of documents in response to the IRS’s discovery requests, but, according to the court, they failed to provide sufficient, responsive information. The court criticized this tactic, describing it as an attempt to “camouflage behind their document dump a barren evidentiary landscape.” One has to take this statement for what it is, as the IRS often demands voluminous records for research tax credits. No matter what documents are provided for the research tax credit, they are often never found to be sufficient.

But for this case, the court noted that producing a vast number of mostly irrelevant documents without identifying specific, relevant portions obstructs the discovery process and prejudices the opposing party. This approach, often called a “document dump,” was deemed insufficient and noncompliant with the court’s discovery orders. The court in Quebe emphasized that such actions result in misdirection, delay, and unnecessary expenditure of resources by the opposing party, thereby justifying sanctions against the defendants.

Ultimately, the court sanctioned the defendants under Rule 37(b), requiring them to provide detailed responses to specific interrogatories, pay the plaintiff’s reasonable fees and expenses, and barred them from introducing any new evidence after the discovery deadline.

Preparing Summaries of Records

Given these types of “document dump” cases, taxpayers may think that the answer is to simply provide summaries, such as accounting records that the taxpayers offered in this case. As you may have guessed, there are also rules and court cases involving summaries of records.

The tax court generally applies the Federal Rules of Evidence, as modified by the court’s own rules. Federal Rule of Evidence (“FRE”) 1006 allows a party to use a summary, chart, or calculation to prove the content of voluminous writings, recordings, or photographs that cannot be conveniently examined in court. The courts have said that this rule does not apply if the evidence is not voluminous as a summary is not needed.

The summary also has to be admitted into evidence in the court proceeding. This is usually handled via stiplations. The tax court rules require the parties to stipulate or agree that documents are admissible. This forced stipulation process is unique to the tax court. Other courts use a motion in liminie process whereby the parties file a pre-trial motion to ask the court to decide whether documents are admissible. This deviation from standard court processes is one of several ways that the tax court differs from most other courts.

Absent stipulations, summaries can be admitted into evidence by presenting the underlying data and testimony from the party that compiled the summary to verify that it is true and complete. The court can then decide to admit or not admit the evidence.

Going Forward With Summaries

With these two positions, the taxpayers in this case opted to press forward by just providing Summaries.

The court described it this way:

To substantiate their reported Schedule C and E expenses, petitioners primarily rely on the Cash Disbursements Journals and the Account Registers found in Exhibit 18-J for each entity. Those documents detail outlays by date, check number, account number, payee, and the like, but, except with respect to the Table Expenses, petitioners have not directed us to anything in the record evidencing actual payment.

The court then made this statement:

In other cases where a taxpayer has presented us with accounting documents merely containing lists of categories and amounts of expenses without the introduction of any source documents underlying the figures, we have treated the documents “as argument — not evidence.”

The court went on to explain that it opted not to use its discretion to make estimates using these records as the taxpayers maintained the underlying records, but simply chose not to provide them.

Had the taxpayers simply provided their bank statements and credit cards, the court may have reached a different conclusion. But to avoid this situation entirely, the common practice is not only to provide the bank and and credit card statements, but to also note on the summary the pages of the bank and credit card statement where the expenses can be found. For example, the summary might list “travel expenses” and note that these expenses are found on pages 1, 2, 3, etc. of the bank statement.

The Cash Disbursements Journals that the taxpayer prepared in this case may have provided a very good starting point for this record system. They apparently listed the expenditures day by day, referencing a date, a check number or account number, payee (e.g., TelePacific Communications), a description (“phone and internet”), and an amount. Just adding the cross reference to the bank and credit card statements may have been all that was needed.

With that said, it can be tedious to present records in this format. And there are instances where even this is not possible given the voluminous nature of the records or the disparate types and formatting of the records.

Asking the Court for Help

Assuming the records are still too voluminous or in a format that cannot be presented as described above, there are still other options that one may consider.

For example, taxpayers can ask the court to limit the scope of the trial to a representative sample of records. This approach, often called a “test case” or “sample case” method, allows the court to examine a smaller, manageable subset of records that are representative of the larger set. The court’s findings on this sample can then be extrapolated to the entire set of records.

Taxpayers can file a motion requesting a pretrial order from the court regarding the admissibility of their summaries and underlying documents. This proactive approach can help resolve evidentiary issues before the trial, potentially streamlining the presentation of evidence.

In some cases, taxpayers might ask the court to take judicial notice of certain facts or documents that are not reasonably in dispute. This is usually for records that are in the public domain, such as published IRS regulations, official government reports, publicly filed SEC documents, or widely recognized economic indicators like interest rates or inflation figures.

While the Tax Court already has a process for stipulations, in cases with particularly voluminous or complex records, taxpayers might request that the court issue a specific order directing the parties to stipulate to the admissibility of certain summaries or categories of documents. This can help ensure that key evidence is admitted without prolonged disputes over admissibility.

Taxpayers can also ask the court to schedule a pretrial conference specifically to address issues related to the presentation of voluminous records. During this conference, the parties and the judge can discuss strategies for efficiently presenting the evidence, potentially leading to court-approved methods for managing the volume of records.

These options may allow taxpayers to avoid the pitfalls of both “document dumps” and overly simplified summaries.

The Takeaway

This case helps explain how to handle the situation where you have to present voluminous financial records in tax court. Taxpayers should prepare comprehensive summaries of their records, ideally linked to underlying source documents like bank statements and invoices. When records are too numerous, consider asking the court for assistance, such as limiting the trial scope to a representative sample or seeking pretrial orders on admissibility. The key is to avoid both overwhelming “document dumps” and overly simplified summaries not supported by underlying source documents.