Taxpayers Made Valid Informal Refund Claim, Despite Using Wrong Form

(Parker Tax Publishing February 2022)

A district court held that claims for refunds of income taxes, interest and penalties that a couple submitted to the IRS on Forms 843, Claim for Refund and Request for Abatement, were valid informal refund claims despite not being filed on Form 1040X as required by Reg. Sec. 301.6402-3 because, the court said, the IRS understood that the taxpayers were seeking a refund. The court also found that the failure by the taxpayers' attorney, who signed the Forms 843, to attach evidence of a power of attorney was cured by the taxpayers' later filing of signed Forms 1040X. Rewwer v. U.S., 2022 PTC 17 (S.D. Ohio 2022).

Background

After a 2011 audit of the tax returns of E. John and Yvonne Rewwer for years 2007-2009, the IRS disallowed business expense deductions the couple reported on Schedule C. As a result, the IRS assessed taxes, penalties, and interest. The Rewwers paid the assessed amounts in full in 2014.

In 2016, the Rewwers, through their attorney Jessica Craven, filed Forms 843, Claim for Refund and Request for Abatement, for years 2007-2009. On these forms, the Rewwers asked the IRS to reopen the audit, reconsider their documentation, and refund the amounts they paid as a result of the IRS's erroneous adjustments. Form 843 is not the correct form for requesting a refund of income taxes. Under Reg. Sec. 301.6402-3(a)(2), such a request is required to be made on a Form 1040X, Amended U.S. Individual Income Tax Return. In addition, on each Form 843 filed by the Rewwers, the taxpayer signature line was signed as "Jessica Craven, POA" and the paid preparer signature line was signed "Jessica Craven." However, Craven did not attach a Form 2848, Power of Attorney and Declaration of Representation, as required under Reg. Sec. 301.6402-2(e).

The IRS allowed the Rewwers' claim for 2008 and issued a refund for that year. However, for years 2007 and 2009, the IRS directed the Rewwers to file refund claims on Form 1040X. The Rewwers filed Forms 1040X in 2016 and 2017, but these forms also were not properly signed. In 2018, the IRS disallowed the Rewwers' 2007 and 2009 claims. The Rewwers appealed this decision, but after two years, the IRS had not made a decision on their appeal. The Rewwers then took their case to a district court. In 2021, after filing their district court complaint, the Rewwers filed properly signed Forms 1040X with the IRS.

The government responded to the Rewwers' district court complaint with a motion for judgment on the pleadings, arguing that the Rewwers failed to file an administrative claim for a refund as required under Code Sec. 7422(a). According to the government, the Rewwers' filings were inadequate because (1) Form 843 is not the correct form to request a refund for income taxes originally filed on Form 1040, and (2) the Rewwers did not provide sufficient authority for an agent to sign on their behalf, and therefore they were relying on an unsigned Form 843. The Rewwers contended that their Forms 843 constituted informal refund claims which they later supplemented with formal refund claims on Form 1040X. Under U.S. v. Kales, 314 U.S. 186 (S. Ct. 1941), a formally defective claim filed within the statutory period that advises the IRS of the nature of the taxpayer's claim will nevertheless be treated as a claim as long as a valid refund claim is subsequently made after the period has run.

Analysis

The district court denied the government's motion for judgment on the pleadings. In the court's view, the Rewwers filed valid informal claims because the IRS understood that they were seeking a refund, even though the proper form was not used.

The court reasoned that the Forms 843 which were submitted made it clear the years for which the refunds were being claimed. The court noted that after receiving these forms, the IRS specifically directed the Rewwers to file Form 1040X because "[t]he assessment must remain unpaid to meet the eligibility requirement to request an audit reconsideration." The court further found that in the correspondence which followed, there was no indication that the IRS did not understand the Rewwers' request. Rather, the IRS asked for more time to conduct research, sent the claims to the Cincinnati Service Center for processing, and at one point, actually appeared to allow the requested adjustment for tax year 2007. The court also noted that the IRS allowed the full amount of the Rewwers' claim for tax year 2008, which was also filed on a Form 843.

In addition, the court said that any deficiencies in the informal claim were cured by the later filing of the Forms 1040X for 2007 and 2009. The court noted that while these forms were not properly signed, after filing their lawsuit in the district court the Rewwers submitted signed Forms 1040X under penalty of perjury on May 5, 2021. The submission of these forms, in the court's view, was largely irrelevant since at no point did the IRS deny the claims on the basis of a lack of signatures or counsel's Form 2848. The court therefore concluded that the IRS should be estopped from asserting this formal requirement since it waived strict compliance until the Rewwers filed their claim the district court.

For a discussion of informal refund claims, see Parker Tax ¶261,115.

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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