Unsigned Refund Claims Were Not "Duly Filed" and Thus Were Invalid

(Parker Tax Publishing January 2022)

The Federal Circuit affirmed the dismissal of a couple's refund claim by the Federal Claims Court after concluding that an income tax refund claim triggers the statutory signature and verification requirements of Code Sec. 6061(a) and Code Sec. 6065 and, if those requirements are not met, an income tax refund claim has not been duly filed under Code Sec. 7422. Further, while the court rejected the Claims Court's finding that Code Sec. 7422 is jurisdictional, it concluded that, because the taxpayer signature and verification requirements derive from the statute, the IRS cannot waive those requirements and the IRS thus had no authority to accept a refund claim from the couple that had been only signed by their lawyer and did not contain a valid power of attorney. Brown v. U.S., 2022 PTC 2 (Fed. Cir. 2022).

Background

George Brown and his wife, Ruth Hunt-Brown, are U.S. citizens. In 2015 and 2017, they lived in Australia and George worked for the Raytheon Company. In October of 2018, the IRS received amended returns for the Browns for 2015 and 2017. These returns were prepared and signed by John Anthony Castro, the Browns' attorney, but they were not accompanied by any powers of attorney. The two returns claimed the foreign earned income exclusion under Code Sec. 911(a).

In January of 2019, the Browns submitted a second amended return for 2015. Like their first amended return for 2015, this return was prepared and signed by Castro and claimed the foreign earned income exclusion. It did not append any powers of attorney. The returns sought refunds of $7,636 for 2015 and $5,061 for 2017. In April of 2019, the Browns received a decision letter from the IRS disallowing their refund claims for 2015 and 2017. In this letter, the IRS explained that as an employee of Raytheon living and working in Australia, George may have entered into a closing agreement irrevocably waiving the Browns' rights to claim the foreign earned income exclusion. The Browns filed a refund suit in the Court of Federal Claims. Under Code Sec. 6532 and Code Sec. 7422(a), a taxpayer can bring a refund suit in the Claims Court after an administrative claim has been "duly filed" and either the taxpayer waited six months before filing suit or the IRS took final action on the claim.

The government moved to dismiss the suit for lack of subject matter jurisdiction. According to the government, the Browns had not "duly filed" their administrative refund claims in accordance Code Sec. 7422(a) because they had not personally signed and verified their amended returns or properly authorized an agent to execute their returns. The Browns responded that even if they had not "duly filed" their refund clams, the IRS had waived the taxpayer signature and verification requirements by processing their refund claims, despite the claims' defects. The Browns added that the signature and verification requirements are regulatory conditions, which the Supreme Court has deemed waivable, instead of nonwaivable statutory conditions.

In Brown v. U.S., 2020 PTC 384 (Fed. Cl. 2020), the Claims Court agreed with the government and dismissed the Browns' suit for lack of subject matter jurisdiction. The Claims Court found that the "duly filed" requirement in Code Sec. 7422(a) is jurisdictional and the Browns' claims did not meet the duly-filed requirement. The Claims Court also rejected the Browns' waiver argument. The court held that waiver does not apply to statutory requirements and that several statutes require individual taxpayers to sign and verify their own refund claims. The court noted that the IRS cannot waive the statutory requirements in Code Sec. 6061(a) and Code Sec. 6065 that require individual taxpayers to sign and verify their own refund claims.

The Browns appealed to the Federal Circuit. They argued that the Claims Court erred in finding that Code Sec. 7422(a) is jurisdictional. They noted that Code Sec. 7422(a) does not mention the term "jurisdiction" and that Congress has not made a clear statement that the signature and verification requirements are jurisdictional. According to the Browns, the signature and verification requirements are regulatory provisions and therefore are subject to waiver by the IRS. The government responded that in U.S. v. Dalm, 494 U.S. 596 (1990), the Supreme Court interpreted Code Sec. 7422(a) to be jurisdictional. The government added that even if the Browns were correct about Code Sec. 7422(a) being non-jurisdictional, the Claims Court's error in finding the provision jurisdictional was harmless and that the case should be dismissed under Rule 12(b)(6) of the Rules of the Court of Federal Claims for failure to state a claim, rather than for lack of subject matter jurisdiction.

Analysis

The Federal Circuit concluded that the Claims Court erred in holding that the Browns' claim for refund was jurisdictional, but that it was harmless error because the Browns failed to meet the "duly filed" requirement. The court thus affirmed the Claims Court's ruling and dismissed the refund suit because the Browns did not comply with the duly-filed requirement of Code Sec. 7422(a).

The Federal Circuit acknowledged that in Dalm the Supreme Court held that the filing requirement in Code Sec. 7422(a) is a jurisdictional limitation. However, the Federal Circuit found that the adequacy of the filing, at issue in this case, is different from the fact of filing. The Federal Circuit noted that in Waltner v. U.S., 2012 PTC 89 (Fed. Cir. 2012), it held that a taxpayer's failure to comply with other Code Sec. 7422(a) requirements (including those implemented by regulation) generally is jurisdictional. But the Federal Circuit said that such jurisdictional characterization could not be reconciled with the Supreme Court's decision in Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118 (S. Ct. 2014), where the Court clarified that so-called statutory standing defects - i.e., whether a party can sue under a given statute - do not implicate a court's subject matter jurisdiction. In the view of the Federal Circuit, the "duly filed" requirement in Code Sec. 7422(a) is more akin to a claims-processing rule than a jurisdictional requirement. Thus, the Federal Circuit affirmed the Claims Court's dismissal of the Browns' suit, but did so on the basis of the Browns' failure to state a claim upon which relief could be granted rather than the Claims Court's lack of subject matter jurisdiction.

The Federal Circuit agreed with the Claims Court that the Browns did not duly file their refund claim in accordance with Code Sec. 7422(a) because, to be duly filed, a claim must be verified by a written declaration that it is made under the penalties of perjury and the Browns neither signed their refund claims nor satisfied the verification requirement with evidence of a valid power of attorney. The Federal Circuit rejected the Browns' argument that the signature and verification requirements are regulatory provisions subject to waiver by the IRS. Rather, the court said that an income tax refund claim triggers the statutory signature and verification requirements of Code Sec. 6061(a) and Code Sec. 6065. In the court's view, these statutory provisions impose a default rule that taxpayers must personally sign and verify their income tax refund claims; otherwise, the documents are invalid or of no legal effect. Because the taxpayer signature and verification requirements derive from statute, the court found that the IRS cannot waive those requirements. Therefore, the court concluded that the IRS had no authority to accept the Browns' improperly executed refund claims.

The Federal Circuit also rejected the Browns' waiver argument. In Angelus Milling Co. v. Comm'r, 325 U.S. 293 (S. Ct. 1945), the Supreme Court held that the waiver doctrine applies when (1) there is clear evidence that the IRS understood the claim that was made, even though there was a departure in form in the submission, (2) it is unmistakable that the IRS dispensed with the formal requirements and examined the claim, and (3) the IRS took action upon the claim. The court said that in this case, there was no evidence that the IRS knew that the Browns had no personally signed their refund claims or verified their accuracy under penalty of perjury because nothing in their refund claims hinted that someone else had executed them and Castro's signature on the claims was illegible. In addition, the court found that nothing in the IRS's April 2019 letter to the Browns mentioned that the IRS was aware that the Browns had not personally signed or verified their refund claims. Thus, the court found nothing in the record to indicate that the IRS dispensed with the requirements even though it examined the claim. Because prongs (1) and (2) of the Angelus Milling waiver test were not satisfied, the court concluded that the Browns were incorrect to presume that the signature and verification requirements were waived.

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