Taxing Lessons From Court Decisions

Decisions – The substance of the form

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Image source: archives.gov
Image source: archives.gov

You may not give much thought to tax forms, especially today, when you likely turn to a computer screen instead of a piece of paper and the IRS no longer mails tax packages. But the IRS has a dedicated Media and Publications Office, part of the Wage and Investment Division, to develop and create tax forms (along with notices, publications, and media production).

So you might think a question about whether the IRS has the authority to change tax return forms and instructions is moot. But in Program Manager Technical Advice 2016-008, an IRS reviewer wanted to know if the IRS could change the forms and instructions to require that the sole owner of a disregarded entity provide the tax identification number of the entity on the owner’s tax return.

Here’s the issue. An eligible entity with a single owner that isn’t a corporation is reported on the owner’s tax return, under the owner’s taxpayer identification number (for example, a social security number). However, the entity may also have an identification number of its own (for example, to use for filing payroll tax returns). That identification number generally doesn’t show up on the owner’s tax return. The problem is matching the tax information reported under the two separate numbers. The disregarded entity may receive information forms such as Form 1099 that show income earned by the entity, and that form may be issued using the entity’s own identification number (which isn’t required to be shown on the owner’s tax return).

Based on internal revenue code section 6011 and the related regulation, the IRS technical advisor decided the IRS could modify the tax forms and instructions to require the owner to provide the entity’s identification number.

Question: What happens if the forms are changed and you don’t provide the number? Would the return be invalid and the taxpayer subject to penalties?

Here are the requirements for a tax filing to be deemed a return:

A document filed with the IRS must

(1) contain sufficient data to calculate the taxpayer’s tax liability,

(2) purport to be a return,

(3) be a reasonable attempt to satisfy the requirements of the tax law, and

(4) be signed under penalty of perjury.

 

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Bonus question

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Note: Taxing Lessons provides a summarized version of sometimes lengthy court decisions. The full case may include facts and issues not presented here. Please use the link provided in the post to read the entire case.

This information should not be considered legal, investment or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment or tax advice. Always consult your legal, investment and/or tax advisor regarding your personal situation.

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Right answer!

A return without the additional EIN is a valid return.

We caution that although we believe the Service has the authority to require the sole owner of a disregarded entity to provide the disregarded entity’s EIN on the owner’s tax return, the failure to do so would neither invalidate the return for statute of limitation purposes nor make the filer subject to failure to file penalties.

The cases hold that to be deemed a return, a document filed with the Service must (1) contain sufficient data to calculate the taxpayer’s tax liability, (2) purport to be a return, (3) must be a reasonable attempt to satisfy the requirements of the tax law, and (4) be signed under penalty of perjury.

Generally, the omission of the taxpayer’s identification number does not render a return invalid.


Nina Wilcox Putnam, an American novelist, screenwriter, and playwright, wrote the first Form 1040 in 1912 for use in tax year 1913.
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