In today’s post Contributor Nina Olson offers views on what happens when taxpayers use the portal.
What is this thing called … portal?
This funny thing called … portal?
Just who can solve this mystery?
Why should it make a fool of me?
With apologies to Cole Porter, over the last two weeks, a few of us at Procedurally Taxing have been noodling over what, precisely, is this thing the IRS has created called the “non-filer tool.” I have been insisting that the “tool” actually creates and files a tax return on behalf of the taxpayer, while Les, for various reasons, was holding out for it being something akin to a tentative application for refund similar to Form 1139. After declaring the entire discussion was giving him a headache, Les finally threw in the towel, and agreed that the “non-filer tool” is a return. But then Les, Keith and I had another conversation and now we are thoroughly confused. This blog is an attempt to identify and explore the sources of that confusion. We welcome comments and observations.
The Non-filer Tool: A Creature with Many Names
According to the irs.gov, the full name of this “tool” is “Non-Filers: Enter Payment Info Here tool.” Before I get into the analysis of why it may be a return, and the consequences of that status, let’s look at how the IRS has described this tool on its website:
Follow these steps in order to provide your information:
• Create an account by providing your email address and phone number; and establishing a user ID and password.
• You will be directed to a screen where you will input your filing status (Single or Married filing jointly) and personal information.
• Note: Make sure you have a valid Social Security number for you (and your spouse if you were married at the end of 2019) unless you are filing “Married Filing Jointly” with a 2019 member of the military. Make sure you have a valid Social Security number or Adoption Taxpayer Identification Number for each dependent you want to claim for the Economic Impact Payment.
• Check the “box” if someone can claim you as a dependent or your spouse as a dependent.
• Complete your bank information (otherwise we will send you a check).
• You will be directed to another screen where you will enter personal information to verify yourself. Simply follow the instructions. You will need your driver’s license (or state-issued ID) information. If you don’t have one, leave it blank.
You will receive an e-mail from Customer Service at Free File Fillable Forms that either acknowledges you have successfully submitted your information, or that tells you there is a problem and how to correct it. Free File Fillable forms will use the information to automatically complete a Form 1040 and transmit it to the IRS to compute and send you a payment.
Now, note the last paragraph of this website excerpt: it tells the taxpayer that Free Fillable Forms will acknowledge the successful submission of information and it “will use the information to automatically complete a Form 1040 and transmit it to the IRS to compute” and then send a payment. [Emphasis added.]
Why is it the IRS website uses all sorts of words – “tool”, “submitted your information” “register” – as if filling in this tool is some innocuous act? If this document is actually a Form 1040, submitted under penalties of perjury, it will trigger the statutory period of limitations for assessing tax and possible penalties; if it is not a tax return, the taxpayer remains fully exposed for later assessment of tax and potential failure to file penalties.
The first clue about what the “tool” might be came in the Treasury announcement of the “tool”, where it was described as a “web portal where Americans who did not file a tax return in 2018 or 2019 can submit basic personal information to the IRS so that they can receive payments.” [Emphasis added.] So now the “tool” is a portal. But what is it a portal to? The basic personal information provided by the taxpayer has to enter the Return Processing Pipeline (RPP) at some point, or payments won’t be issued. Recall that in 2008 the IRS required nonfilers claiming the Economic Stimulus Payment to complete a Form 1040EZ, and IRS e-filing systems required those returns to report at least $1.00 of Adjusted Gross Income. (See my 2008 congressional testimony on this point here.)
At any rate, we’ve learned that the portal is actually just an interface on top of Free Fillable Forms, the fillable 1040 that the Free File Alliance and Intuit created in response to my advocacy for a digital analog of the paper Form 1040 that could be prepared and e-filed for free, regardless of the taxpayer’s income. (See discussion starting on page 236 here.) Now, I am one of the few human beings on the planet who has used Free Fillable Forms since its inception to file my income tax return. (I hate the idea of having to pay for a software package for the privilege of filing and paying my taxes.) So I am very familiar with the product that is lurking behind the non-filer portal/interface.
The second clue as to the portal’s identity was the IRS language quoted above, saying Free Fillable Forms will “automatically complete a Form 1040” and transmit it on to the IRS. Hmmm …. So was this just taking the information, putting it into the Form 1040 in order to get it in a format that could be processed by the IRS, or was it creating an actual return? The IRS is silent on this point. In all its commendable efforts of issuing guidance and FAQs about carryback of NOLs and other items impacting wealthy and corporate taxpayers, the IRS has not explained to the most vulnerable taxpayers among us the actual legal status and significance of using the portal.
The Portal and the Beard Test
In Beard v. Commissioner, the Tax Court outlined the basic requirements of what constitutes a valid return for statute of limitations purposes:
“First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury.”
Let’s apply the Beard test to the non-filer portal.
Step 1: Sufficient data to calculate tax liability: According to the IRS, if the information is successfully submitted, the IRS “will compute and then send a payment.” Here’s the welcome screen to the Free Fillable Forms portal:
Both the IRS and Free Fillable Forms (FFF) websites lay out the criteria for using the portal in negative terms. For example, you cannot use the portal if your 2019 gross income exceeds $12,200 ($24,400 if married filing jointly). You cannot use the portal if “other reasons” require you to file a 2019 Form 1040. So according to the IRS and FFF, if you meet these requirements and fill out the portal, there will be sufficient data to calculate … what? The tax liability, or the amount of the EIP? Since the EIP is contingent on filing status and Adjusted Gross Income, among other things, the IRS has to compute your taxable income (and tax liability) for 2019 in order to calculate the amount of the payment.
So it seems to me the portal might meet Step 1 of the Beard test. What’s holding me back? That language regarding “other reasons” requiring you to file a 2019 Form 1040. This statement implies that the IRS believes the document filed through the portal is not the 2019 individual income tax return. On the other hand, as noted above, the IRS’s website says “Free File Fillable forms will use the information to automatically complete a Form 1040.” Is the Form 1040 a tax return? Only if it meets the Beard requirements. Arghh … this circular reasoning is giving me a headache too.
What might some of those “other reasons” be, for filing a 2019 tax return? Well, you may have income below the filing threshold but have qualifying children for purposes of claiming the EITC, or you qualify for the childless worker EITC. Or you may have $10,000 in self-employment income. Apparently, you can’t use the portal, because you have to file a Schedule C and then compute self-employment (SE) tax. The IRS hasn’t been very clear about this, and I doubt low income folks are pouring over every FAQ on the website. If you tried to use the portal, as you’ll see later in this blog, there’s nothing that asks you about your income. So conceivably, if your self-employment income is below the AGI caps, you could just file through the portal and not pay your SE tax. Would that mean it isn’t a return? I think it could still be considered a return, despite the website language. After all, many low income self-employed taxpayers don’t complete Schedule SE when they file a return with a Schedule C. That’s why IRS has summary assessment authority under IRC § 6213(g)(2)(G) to summarily compute and assess SE tax on returns claiming EITC. At any rate, even if an individual wanted to identify SE income on the portal, there is no way to do so. Similarly, many other taxpayers who file non-portal Forms 1040 leave off Non-employee Compensation reported on Form 1099-MISC and the IRS proposes adjustments to income and assesses additional tax, including SE tax, through its underreporter program. In both of those situations, you still have an original (inaccurate) return.
Step 2: The document must purport to be a return. Once you hit the “get started” button and successfully create an account with a password, you get to the following screen titled Step 1, Fill Out Your Tax Forms.
Although FFF is just a software program, with this language a user of the program could reasonably conclude that the information input into these fields is being used to prepare a tax return. Note that nowhere on this form is the taxpayer asked what his income is. If all the IRS needed was a few bits of information, it could have created a different form that wasn’t labelled a return. By having the “portal filing” going through FFF, I believe the file moves through the entire Return Processing Pipeline. If you want to take a high-level look at the steps included in that journey, see the Taxpayer Advocate Service’s Taxpayer Roadmap. The journey includes math error checks, Identity theft filters, the dependent database (if children are included) and pre-refund wage verification. This latter step includes a process whereby the IRS checks a refund return against the Forms W-2 it has received to date. It seems to me the entire point of using FFF behind the portal is to get the “portal filings” to go through these error and fraud detection filters. Otherwise the IRS would be paying out billions to identity thieves and scam artists.
Note that the next tab says: Step 2: E-file Your Tax Forms. It really would be difficult at this point to not think you were filing a return, notwithstanding the confusing and conflicting website language about “other reasons” for filing a 2019 return and FFF preparing a Form 1040 for you.
The IRS might hang its hat on a “purpose-based” analysis – that is, the purpose of this form is to apply or register for the EIP rather than to report liability under subtitle A. If that is its reasoning, then it needs to make it abundantly clear, because all labeling on this portal militates against that argument, especially as we get to the product at the end of the submission.
Step 3: There must be an honest and reasonable attempt to satisfy the requirements of the tax law. This step in the Beard analysis has been the subject of a great deal of litigation. Les discussed this requirement in his blog about New Capital Fire v. Commissioner, where the Tax Court found the taxpayer only failed to meet this test if the purported return was “false or fraudulent with intent to evade tax.” For our purposes, I think we can say that because the Treasury Department and IRS are practically begging taxpayers with no filing requirement to use this portal, and because it was developed in close partnership and consultation with Treasury and the IRS, if the taxpayer provides the information requested on these screens, and believes she meets the requirements for use of the nonfiling portal, one could easily conclude there was an honest and reasonable attempt to satisfy the requirements of the tax law.
Step 4: The taxpayer must execute the return under penalties of perjury. Well, this is an easy one to meet. After the taxpayer fills out Personal Verification and E-signature sections shown above, she can click the button to e-file. And look what pops up! A jurat!
It seems to me the portal meets 3.5 to 3.75 of the four Beard requirements. The confusion is created by the IRS’s (and FFF’s) conflicting website language, as to whether the portal submission purports to be a return. Fortunately, the site itself has some pretty conclusive evidence, which was provided us by an enterprising LITC attorney, who managed to create a dummy return and make it all the way through the nonfiling portal, answering questions, and saving and printing (but not e-filing) the following document.
I don’t know — if it walks like a duck, and quacks like a duck, maybe it actually is a duck.
We Need More Transparency on This Question.
Some additional thoughts:
Despite all my efforts to think through this thing called “Portal”, I think I’ve acquired Les’ headache. I have no doubt that somewhere in the IRS, Chief Counsel has opined on what this thing is. I hope it isn’t in some kind of “white paper” that Counsel believes is exempt from disclosure. I hope we will see the reasoning some day soon in the form of a PMTA or email required to be disclosed under a settlement agreement with Tax Analysts. For a discussion of Chief Counsel transparency, see here.
To add to the confusion, an IRS notice issued April 24th, 2020 states:
“If they [SSI and VA recipients] have children and aren’t required to file a tax return, both groups are urged to use the Non-Filers tool as soon as possible before the May 5 deadline. Once the deadline passes and processing begins on the $1,200 payment, they will not be eligible to use the Non-Filers tool to add eligible children. Their payment will be $1,200 and, by law, the additional $500 per eligible child amount would be paid in association with a return filing for tax year 2020.”
Further on, the notice says:
“For SSA/RRB beneficiaries who don’t normally file a tax return and have a child but did not register on the IRS Non-Filers tool by April 22, they will still receive their automatic $1,200 beginning next week. Given the deadline has passed, by law, the additional $500 per eligible child amount would be paid in association with filing a tax return for 2020. This group can no longer use the Non-Filers tool to add eligible children.”
What does this language imply? First of all, there is that really weird “did not register” language in the quote above. “Register” by filing a form that is a Form 1040, under penalties of perjury? Huh? What is that?
Second, I don’t see why a person can’t file a return for 2019 claiming qualifying children after either the April 22nd or May 5th deadline. The IRS has peremptorily stated this prohibition is required “by law” but I have seen no published guidance, no explanatory FAQ, and no PMTA on this point. On the most basic questions pertaining to the most vulnerable taxpayers, the IRS has not been transparent.
I am wondering whether, in order to generate the automatic EIPs to SSA/SSDI/SSI/VA beneficiaries, the IRS is secretly creating returns. If that is the case, I would understand it saying you can’t efile a 2019 return after automatically processing the EIP. The IRS has long maintained that once you e-file a return, you cannot e-file another one. The system will reject it. Thus, victims of identity theft must file a paper return if the identify thief has e-filed before them.
But the IRS isn’t just saying you can’t e-file a return. It is saying, without any transparent legal analysis or explanation, you can’t file a 2019 return at all in order to claim the $500 EIP for qualifying children; instead you much wait until 2020. Well, if the nonfiler portal is just a “registration” of some sort, then you should be able to file a paper 2019 Form 1040 as an original return and be issued an additional EIP for your children. You just need to do it in time for the IRS to issue the advanced EIP before December 31, 2020. That’s the only statutory deadline in the CARES Act. Alternatively, if the nonfiler portal actually generates a return under Beard, you can file a superseding 2019 return before July 15, 2020, the filing deadline, as Nancy Rossner discussed in a recent PT post.
My personal hunch is the IRS is swamped and really worried about how it will dig itself out of all of this. It didn’t want to issue automatic payments; recall it initially stated that SSA and RRB and SSI and VA folks would have to file returns, just like in 2008. It doesn’t want to have to process supplemental advanced EIPs. I get that. It is a lot of work, when the IRS is already reeling from the impact of the pandemic. But so are the low income individuals and families of the United States. They shouldn’t have to wait until 2021 to get the additional EIP for their children. And that doesn’t depend on whether the portal is a return or … a mystery.