I am looking
at case where the CPA signed a return on behalf of a client.
Been there
and done that.
There is a hard-and-fast
rule when you do this.
Let’s go
through it.
The Mattsons
were working in Australia for the Raytheon Corporation.
In April,
2017 they timely filed their 2016 individual tax return, paying $21,190 in federal
taxes.
COMMENT: This immediately strikes me as odd. I would have anticipated a foreign income exclusion. Maybe they were over the exclusion limit, meaning that some of their income was exposed to U.S. tax. Even so, I would then have expected a foreign tax credit, offsetting U.S. tax by taxes paid to Australia.
Turns out
they had signed a closing agreement when they went to Australia. The agreement
was with the IRS, and they waived their right to claim the foreign income
exclusion.
Ahh, that
answers my first question.
Why would
they do this?
In return for agreeing not to claim the 911 exclusion, the government of Australia has entered into an agreement with the United States Government not to subject the income earned by the taxpayer to Australian taxes."
Yep, there
are advantages to working with the big company. It also answers my second
question.
Seems to me
that we are done here. Taxpayers paid taxes on their Australian wages solely to
the United States. In exchange they forwent the foreign income exclusion. Makes
sense.
The Mattsons
changed CPA firms. The new firm prepared an amended 2016 return for – you
guessed it – the foreign income exclusion.
COMMENT: I presume the new firm did not know about the closing agreement.
A CPA at the
firm signed the amended return on behalf of the Mattsons.
No problem,
but she did not attach a power of attorney authorizing the CPA to sign the
return.
Not good,
but there is time to fix this.
The IRS held
the amended return and sent a letter wanting to know why the Mattsons had taken
a position contrary to the closing agreement.
Me too.
In May, 2019
the CPA firm requested an Appeals hearing.
OK.
In July,
2019 the IRS sent a letter that they were disallowing the refund.
The
taxpayers filed suit in Court.
To me, the
controversy was done with discovery of the closing agreement. There is a Don
Quixote quality to this story once that fact came to light.
There is a
requirement in the tax Code and a list of cases as long as my arm that
taxpayers have to sign a return, especially a claim (that is, a return
requesting a refund). A CPA can sign the return on behalf of a client, but the
CPA is charged with attaching a copy of a power of attorney to the return.
Hold on,
argued the CPA. We sent a power of attorney to the IRS in November, 2018.
This is new
information.
And it introduces
the “informal claim” doctrine to our discussion.
The idea is
that the taxpayer can correct the defect in a claim. That is what “informal” means
in this context – think of the first claim as a placeholder until it is
perfected. The CPA firm had failed to initially attach a power of attorney, but
it subsequently corrected this error in November, 2018.
Issue: the
claim has to be perfected BEFORE the start of a lawsuit.
Fact One:
the lawsuit was filed in July, 2019.
Fact Two: the
power was sent to the IRS in November, 2018.
Reasoning: the
dates work.
Question: did
the taxpayer correct their claim in time?
I sign powers
of attorney all the time. I doubt I go a week without filing at least one with
the IRS. I like to explain to clients (unless they have been through the process
before) what the limitations are to a standard tax power of attorney. I can
call the IRS, request and/or agree to adjustments or stays, and so forth.
However, what
our standard power does not do is allow me to sign the return. A client can give
me that authority, true, but is has to be separately stated on the power. Our
routine powers here at Galactic Command, for example, do not include the
authority to sign a return on behalf of a client. In truth, unless there are
exceptional circumstances, I do not want that authority. I don’t want to
receive a client’s refund check, either.
I can almost
visualize what happened.
The CPA
signed the return. She knew that she needed a power, so she – or a staff
accountant – generated one from their software. It was a default power, the one
they – like we – use in almost all cases. No one paused to consider that the
default power was not appropriate in this instance.
There was
still time to fix this. The firm could revise the power to allow the CPA
authority to sign, collect the appropriate signatures and record the power with
the IRS.
But they had
to do this before bringing suit.
Which they
did not.
The informal
claim doctrine did not apply, because the placeholder claim was not perfected
before filing suit.
Our case this
time was Mattson v U.S., 2021 PTC 110 (Fed Cl 2021).
