Morgan v. Commissioner

MEMORANDUM FINDINGS OF FACT AND OPINION

CLAPP, Judge: Respondent determined deficiencies in, and additions to, petitioners' Federal income taxes for the years 1980 and 1981.

The issues for decision are: ¹

(1) Whether petitioners filed timely joint Federal income tax returns for the years 1980 and 1981;

(2) Whether respondent is estopped from denying that the Forms 1040 filed by petitioners for the years 1980 and 1981 were valid returns;

(3) Whether petitioners' liabilities for income tax for the years 1980 and 1981 may be computed on the basis of rates applicable to joint returns;

(4) Whether petitioners are liable for additions to tax pursuant to section 6651(a)(1)² for failure to file timely returns and pursuant*183 to section 6654 for failure to pay estimated tax for the years 1980 and 1981; and

(5) Whether petitioners are liable for additions to tax for negligence or intentional disregard of the rules and regulations for the years 1980 and 1981.

FINDINGS OF FACT AND OPINION

For purposes of convenience, our findings of fact and opinion are combined. Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference. Petitioners were domiciled in Elm Grove, Wisconsin at the time of the filing of their*184 petitions.

This case appears to be before us for the sole reason that the Forms 1040 filed by petitioners for the taxable years 1980 and 1981, had the words above the signature lines "Under penalty of perjury" lined out. ³ These forms were filed on an otherwise timely basis and, as now stipulated by the parties, reported petitioners' income and deductions with substantial accuracy.

Returns and Tax Rates

At trial, petitioner Susan Morgan denied that the perjury line had been crossed out when she signed the returns. Petitioner William Morgan, on the other hand, would only state that he had no recollection of deleting the perjury lines. We find petitioner William Morgan's less than definitive statement to be less than convincing. Petitioners bear the burden of proving the validity of the return. Rule 142(a). ⁴ We find that petitioner William Morgan has failed to demonstrate that he was not responsible for deleting the perjury lines on the Forms 1040 submitted by petitioners for 1980 and 1981. As will be explained infra, however, we believe that the*185 issue of whether petitioner Susan Morgan knew that the perjury lines had been deleted has, along with a number of other issues in this case, been rendered moot by a stipulation of the parties.

A Form 1040 which is not signed under penalty of perjury does not constitute a valid return. Cupp v. Commissioner,65 T.C. 68, 78-79 (1975), affd. without published opinion 559 F.2d 1207 (3d Cir. 1977); Vaira v. Commissioner,52 T.C. 986, 1005 (1969), revd. on other grounds 444 F.2d 770 (3d Cir. 1971). See also Beard v. Commissioner,82 T.C. 766, 777 (1984), affd. 793 F.2d 139 (6th Cir. 1986). Therefore, the Forms 1040 filed by petitioners are not returns. Petitioners, nevertheless, argue that because several of respondent's agents dealt with the Forms 1040 submitted by petitioners for the years 1980 and 1981 and in communications with petitioners referred to the forms as returns, respondent is*186 estopped from denying that the forms were valid returns. Petitioners' argument is without merit. Respondent cannot be estopped from correcting a mistake of law. Automobile Club of Michigan v. Commissioner,353 U.S. 180, 183 (1957). The status of a document as a return for Federal income tax purposes is a question of law.

Despite petitioners' arguments to the contrary, they may not now calculate their income taxes for the years in issue on the basis of rates applicable to married individuals filing joint returns. Section 1(a) provides that such rates are applicable to determine the tax imposed on "every married individual * * * who makes a single return jointly with his spouse under section 6013." Thus, in order for the tax rates provided in section 1(a) to be applicable, a joint return must be filed. Thompson v. Commissioner,78 T.C. 558, 561 (1982). The Forms 1040 submitted by petitioners for the years 1980 and 1981 (and the Form 1040X for 1980) were not valid joint returns and petitioners have not subsequently filed joint returns for either of these*187 years.

Section 6651 and 6654 Additions

At trial, the record was left open for the parties to submit a stipulation setting forth the items of income, deduction, and credit which should have appeared on petitioners' returns for the years 1980 and 1981 if filed as joint or separate returns. This stipulation was filed with the Court shortly before the parties submitted their final briefs. The amounts set forth in this stipulation show that on a separate return basis, petitioner Susan Morgan had no taxable income during either of the years in issue and petitioner William Morgan had a tax imposed in 1980 which was less than the amount of tax withheld from his wages. It would appear that with respect to the 1981 taxable year, petitioner William Morgan did have a tax imposed in excess of the tax withheld from his income. ⁵

*188 Section 6651(a)(1) imposes an addition to tax for failure to timely file a return unless the taxpayer shows that such failure was due to reasonable cause and not willful neglect. ⁶ This addition is based on a percentage of the "amount required to be shown as tax on [the] return," which amount is to be reduced by the amount of any credit against the tax which may be claimed on the return. ⁷ The tax required to be shown on the separate returns of petitioner Susan Morgan for the years in issue was zero. Petitioner William Morgan's separate return for 1980 would show a tax which was less than the amount of tax withheld on his income. Even if found to be applicable, therefore, the additions to tax for failure to file timely returns would nevertheless be zero with respect to petitioner Susan Morgan for the years in issue and with respect to petitioner William Morgan for his 1980 taxable year. As such, we consider the issue of whether the addition is applicable in such cases to be moot. With respect to petitioner William Morgan's 1981 taxable year, petitioners' have not shown that the failure to file was due to reasonable cause. Accordingly, we find that the addition to tax under*189 section 6651(a)(1) is applicable.

*190 The section 6654 addition to tax for failure to pay estimated income tax is computed by applying an annual rate to the amount of the "underpayment" for the period of the underpayment. ⁸ The amount of the underpayment equals, where no return has been filed, 80 percent of the tax for such year over the amount of the installments paid on or before the due date for payment of such installments. ⁹ The tax withheld from a taxpayer's income is treated as a payment of estimated tax and, generally, an equal part of such withholding is treated as paid on each installment date. ¹⁰

*191 Again, the amount of the underpayment upon which the addition is based is zero with respect to petitioner Susan Morgan for both of the years in issue. The issue of petitioner Susan Morgan's liability for this addition is therefore moot. With respect to petitioner William Morgan's 1980 taxable year, his deemed installment payments under section 6654(e), resulting from tax withheld on his income, exceed the amount of the installment payments due. Therefore, the section 6654 addition is not applicable to him for 1980. With respect to petitioner William Morgan's 1981 taxable year, the application of the section 6654 addition to tax is appropriate.

Negligence or Intentional Disregard

Section 6653(a) imposes an addition to tax if any part of an underpayment is due to negligence or intentional disregard of rules and regulations. ¹¹ The addition is equal to 5 percent of the underpayment for the year and where a return has not been filed, the amount of the underpayment is generally equal to the tax imposed (unadjusted by the amount of any tax withheld from the taxpayer's income). ¹²

*192 As previously stated, the parties have now stipulated facts which show that petitioner Susan Morgan had no taxable income for either of the years in issue. Again, the applicability of this addition to petitioner Susan Morgan is a moot issue, as the amount of such addition would be zero. Because the tax withheld on petitioner William Morgan's income is not an offset to the base upon which this addition is calculated, the application of the addition to him is at issue with respect to both of the years in issue. On brief petitioners conceded that if we find that they did not file valid returns for the years in issue, petitioner William Morgan is subject to this addition.

Decisions will be entered under Rule 155.