We welcome back my colleague, Audrey Patten for a discussion of a recent case providing an expansive view of the tacit consent doctrine. Audrey has developed a significant docket of innocent spouse cases and is currently working with Christine to write the third edition of A Practitioner’s Guide to Innocent Spouse Relief. Look for their book coming out later this year. Keith
For those of us with many innocent spouse cases, it is common for clients to point out that they may not have actually signed a joint return. Such clients’ position is that they should therefore be absolved of any joint liability derived from the return. It is well established case law, however, that a missing spousal signature does not automatically negate the validity of a joint return. While the burden will be on the IRS to prove a return with a missing signature is valid, the doctrine of tacit consent holds that if the facts and circumstances show that a non-signing spouse intended to file a joint return, a return the taxpayer did not actually sign can still meet the criteria for a valid joint return. But how far can the doctrine of tacit consent go? On December 1, 2021, the Tax Court issued a memorandum opinion in Soni v. Commissioner that extends the tacit consent doctrine beyond the joint tax return context to encompass tax matters handled by the other spouse, including powers of attorney and extensions of the statute of limitations. The application of tacit consent in areas beyond the validity of a joint return is what makes the Soni case significant.
Soni is not an innocent spouse case. Rather, Om Soni and his wife, Anjali Soni, filed a tax court petition that challenged the validity of a Notice of Deficiency issued on a joint return they filed for tax year 2004 (for clarity, the parties’ first names will be used throughout). Two questions presented in the case were whether the joint return was valid and whether the limitations period for assessment of tax had expired before the notice issued. (The other two questions were challenges to the imposition of penalties under I.R.C. §6501 and §6651 and are beyond the scope of this discussion). The Court found that tacit consent on the part of Anjali was dispositive of both issues.
Om was a businessman who engaged in a variety of ventures. Anjali was a homemaker and, aside from some marginal passive income, did not make any money. By her own testimony, the marriage was very traditional and she expected her husband to handle all financial matters, including the couple’s taxes. She lived an affluent lifestyle. There were no allegations of any domestic abuse. Om for his part, often delegated personal business, including handling IRS related mail, to his employees. The couple also had a grown son who would discuss his parents’ tax matters with his father and assist with preparing documents. Anjali, again by her own testimony, never reviewed any tax returns because such documents made her nervous. She also never signed any returns herself. She even testified that she left documents “for days and days. Because I don’t feel like reading papers like this.” She also testified, regarding her husband, that “I trust him with everything…whatever he does, I do trust him. I never discuss his business with him.” Anjali would sometimes collect mail left at the house, but only sort out her magazines. Any IRS correspondence she would immediately pass to Om or her son without opening it.
For the 1999 through 2004 tax years, an accounting firm prepared all of the couple’s joint income tax returns. Om would review the returns, but not Anjali. For the 2004 return, the couple’s son physically signed his mother’s name onto the return, without first showing her the return.
Om’s businesses suffered losses during 2004. In 2006, the IRS began auditing the 2004 return. In 2008, the IRS received a Form 2848, authorizing a representative named Mr. Grossman to act on behalf of the Sonis. The signatures on the form were dated in 2006. Anjali did not sign the Form 2848 authorizing Mr. Grossman to represent her, but her signature was present. It later turned out that Mr. Grossman was in the habit of signing his clients’ names onto Forms 2848 for them. In 2015, the IRS received a set of two Forms 2848, authorizing the couple’s son to represent Om and Anjali. Om signed his Form 2848. Anjali did not personally sign her Form 2848.
Over the next several years, a total of eight Forms 872 (including one Form 872-I), “Consent to Extend Time to Assess Tax,” were filed with the IRS. The first two were signed by Mr. Grossman as the representative. The remaining six were signed by Om for himself and by the son on behalf of Anjali. Neither Om nor his son ever discussed Form 872 or 872-I with Anjali. The extensions ultimately extended the period of limitations for assessment of tax to December 31, 2015. As a result of the extensions, the IRS argued it was still within its limitations period when in March 2015 it mailed a Notice of Deficiency of $642,629 for tax year 2004.
The first argument raised by the Sonis was that the 2004 tax return itself was invalid as a joint return because, not only did Anjali not sign the return, but her signature was placed on the return by her son. The Court provides a useful review of the rules for establishing the validity of a joint return. First, it points out that if a spouse does not sign a return, the burden is on the IRS to prove it was valid. However, the lack of signature can be overcome by showing that the parties intended to sign a joint return. Even if the non-signing spouse did not explicitly state that she wanted to file a joint return, the facts and circumstances can lead to a finding of validity under the tacit consent doctrine. Since tacit consent is a facts and circumstances analysis, the fact that the signature was written by the son also does not, by itself, negate the validity of the return. Common factors in the tacit consent doctrine include whether the non-signing spouse had filed a separate return, whether there was a prior history of filing joint returns, whether the non-signing spouse had objected to the return after it was filed, and whether there was a pattern of one spouse handling the financial matters.
All of these factors weighed in favor of tacit consent in this case. Anjali repeatedly testified that she did not review the returns by choice because she expected her husband to handle them. She did not file any returns on her own and there is no record of her contacting the IRS to object to the joint filing. The couple had also been consistently filing joint returns for the prior five years. These facts were supplemented by Anjali’s admissions that she chose not to review the returns. The Court was able to confidently find that the 2004 joint return was valid via the tacit consent doctrine.
However, the opinion moves into more complicated territory when determining whether the extended time periods for the IRS to assess the return were valid. To do this, the Court first reviews whether the Form 2848 appointing Mr. Grossman as a representative was valid as to each of the Sonis and then it discusses whether the eight Forms 872 were also valid as to each spouse. As the Court acknowledges, “[t]he Code treats married taxpayers who file jointly as one taxable unit; however, it does not convert two spouses into one single taxpayer. Spouses filing a joint return are separate taxpayers, and each spouse has an absolute right to extend or not extend the time within which to assess…A waiver to extend the period to assess a deficiency is valid only as to the spouse who signs the waiver.”
The Court first finds that Om’s signature on the Form 2848 was valid. It then uses common law agency principles to find that, as to the first two extensions signed by Mr. Grossman, Om had delegated that authority because he treated Mr. Grossman as his representative throughout the time period in question.
But how does this extend to Anjali? Common law agency principles would not work here because there is no evidence of Anjali directing Mr. Grossman to act as her representative. Instead, the Court states, because Anjali gave Om “tacit consent to handle tax matters…we might be able to rely on that authority to conclude Om authorized Mr. Grossman’s representation of Anjali.” The only further analysis the Court makes on this point is to note that Anjali remained silent as to the representation, thus allowing the IRS the impression that Mr. Grossman represented both parties, and therefore making his signatures on the first two Forms 872 valid. The Court’s conclusion is that “[b]ecause Om authorized Mr. Grossman’s representation, Anjali also tacitly consented, through Om’s agency.”
The Court takes this position a step further by then finding that the next six Forms 872 signed by Om and by his son signing on behalf of Anjali, without her direct knowledge, were also valid on the basis that Anjali had tacitly consented to letting Om handle all financial matters and that she never showed any due diligence in becoming involved in resolving the couple’s tax matters. The Court found that “[w]hile Anjali may not have expressly given her husband authority to sign specific forms, it was well understood that Anjali gave him implied authority to act on her behalf.”
The specific facts in this case, particularly Anjali’s own testimony that she did not want to deal with any tax matters and trusted her husband to handle them, convinced the Court that she had given Om a blank check for any decisions made regarding taxes. In doing so, however, the Court took the specific doctrine of tacit consent as applied to confirming the validity of joint returns and converted it into a general concept of “tacit consent to handle tax matters,” with only limited further analysis. This expansion of the doctrine raises concerns, especially as to cases that may not have such clear spousal testimony as to the consent. If a spouse has indeed given tacit consent to a joint return, it does not automatically follow that they have tacitly consented to each and every decision the other spouse later makes regarding that return. The consequences of a broad reading of the tacit consent doctrine could be quite severe to a taxpayer’s individual rights and rigorous analysis should be required to justify such conclusions.
A reason that does support this decision concerns the impact of the documents on the IRS. The IRS relied on the signed document to extend the statute and, in the case of the return, to assess the liability. If one taxpayer can come back later after the statute has expired and say I did not sign this and did not consent to filing this, then the IRS is put in a bad position. Here, the Court seemed to find that the burden to undo the potential harm of having the statute extended should fall on Anjali. That does not necessarily seem wrong on the facts in the Soni case, but this presents a difficult situation that can also come up in other contexts, such as the filing of joint Tax Court petitions in situations where one spouse is claiming they have the other spouse’s authority to file a joint petition.
It thus remains an open question as to how far the tacit consent doctrine can be expanded in future cases. Specifically, if one party is passive in the circumstances surrounding a tax liability, how far should the IRS or the Tax Court go to make sure that the other party is on board? In the interim, the major takeaway from this case is that spouses will not get very far in arguing that they are absolved by having taken a head in the sand approach to joint tax matters.