Failure to Attach Power of Attorney to Refund Claim Doesn't Necessarily Doom Filing

(Parker Tax Publishing October 2024)

The Federal Circuit vacated a Federal Claims Court decision that dismissed a taxpayer's refund claims based on a procedural flaw - namely that the taxpayer failed to attach a power of attorney (POA) to those claims. The Federal Circuit held that the requirement in Reg. Sec. 301.6402-2(e) that a POA must accompany a tax refund claim is regulatory, and not statutory, and thus may be waived by the IRS in certain circumstances. Vensure HR, Inc. v. U.S., 2024 PTC 364 (Fed. Cir. 2024).

Background

Vensure HR, Inc. is a professional-employer organization that provides other companies with services to outsource employee-management tasks, including payroll and tax reporting services. As part of its tax reporting services, Vensure withholds, reports, and pays employment-related taxes on behalf of companies to the IRS.

In the second quarter of 2014, Vensure reported and paid employment taxes. Believing those payments to be an overpayment of more than $3.7 million, Vensure filed tax refund claims with the IRS in October 2014 and June 2015. According to Vensure, these overpayments led to Vensure's inability to timely pay taxes for later periods. As a result of the late payments, the IRS assessed tax penalties amounting to more than $1.5 million.

Vensure fully paid the late tax payments and related penalties but sought a refund or abatement of the tax penalties through the filing of six IRS Forms 843, Claim for Refund and Request for Abatement. When a Form 843 is filed by a corporation, the form must generally be signed by "a corporate officer authorized to sign." However, the instructions to Form 843 also allow an authorized representative to sign and file Form 843 on behalf of the taxpayer. Each of the forms filed by Vensure were signed by Chris Sheldon, an attorney representing Vensure in the preparation of various tax forms.

The instructions to Form 843 state: "If [the taxpayer's] authorized representative files Form 843, the original or copy of Form 2848, Power of Attorney and Declaration of Representative, must be attached." Vensure did not concurrently attach a Form 2848 to any of the six penalty-refund claims at the time of filing. There were, however, at least three Forms 2848 filed with the IRS at various points in time that purported to give Sheldon power of attorney over Vensure's penalty-refund claims.

In 2018, the IRS denied Vensure's penalty-refund claims because Vensure had not met a "reasonable cause" exception to avoid the penalties. In denying these claims, the IRS sent its decision letters to Sheldon "under the provisions of your power of attorney or other authorization we have on file." After pursuing administrative remedies at the IRS, Vensure filed a complaint in the Court of Federal Claims seeking a refund of the penalties imposed. The government moved to dismiss, arguing that Vensure's penalty-refund claims were not "duly filed" under Code Sec. 7422(a).

Under Code Sec. 6061(a), any return, statement, or other document required to be made under any provision of the internal revenue laws or regulations generally must be signed in accordance with forms or regulations. Code Sec. 6065 generally states that any return, declaration, statement, or other document required to be made under any provision of the internal revenue laws or regulations must contain or be verified by a written declaration that it is made under the penalties of perjury.

The government asserted that there were two flaws with Vensure's claims: (1) Vensure had not signed and verified the claims under Code Sec. 6061(a) and Code Sec. 6065, and (2) Vensure had not attached a POA to the Forms 843 that would permit Sheldon to sign those forms and properly submit the refund claims. Vensure countered that, under Brown v. U.S., 22 F.4th 1008 (Fed. Cir. 2022), the "duly filed" requirement in Code Sec. 7422(a) is non-jurisdictional and Vensure "substantially complied" with the POA requirement with the filing of its previous Forms 2848.

The Court of Federal Claims agreed with Vensure that Code Sec. 7422(a) is non-jurisdictional. However, relying on Code Sec. 7422(a), Reg. Sec. 301.6402-2(e), the Brown decision, and various IRS instructions, the court determined that Vensure had failed to duly file its refund claims because it had not submitted a valid POA with the refund claims. According to the court, this attachment requirement is statutory and thus cannot be waived. Vensure appealed to the Federal Circuit.

Vensure raised three issues on appeal: (1) whether Reg. Sec. 301.6402-2(e)'s requirement that a POA must accompany the claim (i.e., the "accompany" requirement) means a POA must be attached to the claim for refund; (2) whether Reg. Sec. 301.6402-2(e)'s use of "accompany" is a statutory, non-waivable requirement or is regulatory and thus waivable; and (3) whether the IRS had waived the "accompany" requirement of Reg. Sec. 301.6402-2(e).

The parties each provided their own definitions of "accompany" within the context of Reg. Sec. 301.6402-2(e). Vensure argued that "accompany" means "relevant," "on file and . . . existing at the time, valid, and sufficient to authorize the signing of the . . . Form 843." The government on the other hand, argued that "accompany" means "attach."

Analysis

The Federal Circuit vacated the lower court's ruling and remanded the case for further proceedings. The court held that Reg. Sec. 301.6402-2(e)'s requirement that a POA must accompany the claim is regulatory and not statutory. Therefore, the court said, this requirement may be waived by the IRS in certain circumstances. Thus, while the IRS may demand strict compliance with its regulations, the court found that when it fails to do so, and instead addresses a claim on its merits, the requirement that a POA must accompany the claim may be waived.

The court then provided guidance to the Court of Federal Claims to determine on remand whether the IRS waived the "accompany" requirement in this case. It began by noting that the Supreme Court, in Angelus Milling Co. v. Comm'r, 325 U.S. 293 (1945), drew a clear distinction between "explicit statutory requirements" contained in statutes enacted by Congress concerning the collection of taxes and the administrative regulations authorized by the IRS. The court observed that specific informational requirements set forth in the multiple regulations involved in Angelus Milling were deemed by the Supreme Court to be regulatory in nature, subject to waiver by the IRS, and not statutory commands beyond the IRS's discretion to waive.

With respect to the "accompany" requirement of Reg. Sec. 301.6402-2(e), the court noted that this requirement presents a regulatory question of when, where, and how to file a POA - not whether one is required to be provided in lieu of a taxpayer's signature in the first place. After determining that the "accompany" requirement is regulatory, the Federal Circuit said that two fact-based questions remained: (1) whether Vensure's POAs as filed were sufficient to authorize an agent to execute its penalty-refund claims; and (2) whether the IRS waived the "accompany" requirement in this case. The court remanded these questions of fact back to the Court of Federal Claims to decide.

For a discussion of the procedures for filing a refund claim, see Parker Tax ¶261,110.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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