It’s late in the day. After weeks of review, it’s time to file an entity classification election for an entity in your company’s structure. The election is due today. You have already carefully analyzed the ramifications of the election. Form 8832 has been drafted, reviewed, and approved. All that is needed before mailing is a signature. That’s the simple part, right?
Not necessarily. Tax returns, elections, statements, agreements, or other tax documents must be signed by properly authorized individuals. Execution by an unauthorized individual can potentially produce a host of unintended and unfortunate consequences, including: invalidating an entire return,1 jeopardizing closing agreements and other settlements,2 nullifying a tax election,3 and triggering penalties.4
While the rules are simple to recite, determining who is properly authorized is not always straightforward. This is in large part due to the different rules that apply depending on the type of entity, taxpayer, return, form, or tax at issue.5 Moreover, myriad state statutes and fact-intensive common law principles play a role in this area and supplement existing federal tax law.6 In some instances, federal tax law expressly looks to local law or an entity’s organizational documents to determine who has proper signature authority.7 Finally, as many tax documents are commonly signed long after a tax return is filed, intervening business events, such as mergers or reorganizations, can often change who may sign for a particular taxpayer; simply relying on who signed prior tax forms is risky.
This article examines applicable authorities, discusses a recent Chief Counsel Memorandum (CCM) that applied these authorities in the corporate context, and highlights the general rules for several common forms and filings tax executives commonly encounter. This article does not comprehensively address all nuances taxpayers might face, as such an effort could fill a treatise. Rather, it is intended to assist tax executives in spotting signature authority issues and to highlight associated rules and guidance that should be considered before a document is signed and filed with the IRS.
What Establishes Signature Authority?
Section 6061 establishes the general rule that “any return, statement, or other document required to be made under any provision of the internal revenue laws or regulations shall be signed in accordance with forms or regulations prescribed by the Secretary.”8
Corporate returns “with respect to income shall be signed by the president, vice-president, treasurer, assistant treasurer, chief accounting officer or any other officer duly authorized so to act.”9 However, “[s]tatements and other documents required to be made by or for corporations” with respect to income taxes, “shall be signed in accordance with the regulations contained in [chapter 61] or the forms or instructions, issued with respect to such statements or other documents.”10
Partnership returns “shall be signed by any one of the partners.”11 The regulations elaborate that statements and other documents required to be made may also be “signed by any one of the partners.”12
For corporate and partnership returns, the fact that an individual’s or partner’s “name is signed on the return shall be prima facie evidence” that such individual or partner “is authorized to sign.”13 The same is generally true with respect to statements or other documents.14
These rules may appear clear-cut. But there are various exceptions.15 More important, the code, regulations, and forms and instructions often do not resolve who is “authorized” to act for an entity.16 Various state statutes and common law principles of agency or estoppel often fill these gaps.
A recent CCM illustrates the complexities of applying these rules to fact patterns that are not uncommon.
Recent Chief Counsel Memorandum Demonstrates Complexities
On June 5, 2015, the IRS released a heavily redacted CCM.17 The threshold issue was whether the IRS “may rely upon a consent to extend the statute of limitations when a representative signed the consent pursuant to a power of attorney form signed by an individual as president of Taxpayer after Taxpayer merged into its subsidiary.” If the form were invalid, presumably the statute of limitations would have expired, a result unfavorable to the government.
Because the CCM is heavily redacted, the facts are difficult to discern. However, it appears that, in Year Four, Corporation A merged into its subsidiary, Corporation B. Before the merger, Officer One was Corporation A’s president and, after the merger, Officer One was Corporation B’s president. Post-merger, Officer One signed a Form 2848 (power of attorney) in Corporation A’s name as Corporation A’s president.18 The Form 2848 related to Corporation A’s Year Three and designated Representative as authorized to act on Corporation A’s behalf. Representative then signed Consent One, a consent to extend the Corporation A’s statute of limitations for Year Three.19 Consent One contained Corporation A’s name below Representative’s signature.
Exam was unsure if Consent One was valid. The CCM ultimately concluded (after more than twenty pages of analysis with significant redactions) that it was, in fact, valid. The validity of Consent One hinged, of course, on the validity of Corporation A’s Form 2848.
First, the CCM identified the sources of signature authority for Form 2848, noting that the instructions stated that Form 2848 should be signed by “[a]n officer having authority to bind the taxpayer.” But neither the code nor the regulations specifically define who has such authority. However, as the IRS generally applies the rules governing the signing of returns to determine who has authority to sign extensions of statutes of limitations,20 the CCM analogously applied similar rules to determine who has authority to sign Form 2848. The CCM concluded that, because Corporation B was Corporation A’s successor, an officer of Corporation B should have signed the Form 2848 as an officer of Corporation B. Relying upon its heavily redacted analysis of applicable state merger law, the CCM nevertheless concluded that Officer One, as a prior officer of Corporation A and current officer of Corporation B (Corporation A’s successor), had authority to consent to extend the statute of limitations for Corporation A’s Year Three tax return.
Without further analysis, the CCM concluded that the IRS could rely on the Form 2848 captioned in the name of Corporation A and signed by Officer One as Corporation A’s President after the merger of Corporation A into Corporation B, effectively ignoring the fact that Corporation A no longer existed.
Second, the CCM opined that, even if state law did not authorize Corporation A to execute a Form 2848 in its own name after it merged into Corporation B, Corporation B was bound by apparent authority and ratification, two common law principles of agency. Even though the IRS knew that Corporation A had merged into Corporation B, the CCM concluded that Exam reasonably relied on Corporation B’s manifestations that Corporation A had authority to act in its own name after the merger. The CCM further concluded that subsequent acts were a “retroactive adoption of an unauthorized signature” and therefore ratified Officer One’s authority to sign Form 2848. While the CCM noted that ratification is a “complex, fact-intensive inquiry,” exactly what acts served to ratify Officer One’s authority are redacted.21
Finally, the CCM addressed two additional nuances that commonly arise in this area. First, because state law principles were relevant and two states’ laws were potentially applicable, chief counsel had to analyze choice of law issues to determine which state’s merger law applied. Second, chief counsel applied reformation of contract principles to remedy “errors in drafting Consent One.”22 Although Consent One applied on its face to Corporation A’s Year Four, Chief Counsel found “clear and convincing evidence that both Corporation B and the Service intended that Consent One extend the statute of limitations for Corporation A’s Year Three.”
The CCM devotes more than twenty pages of analysis to this issue and addresses many facets of federal, state, and common law. It is a case in point of how complex signature authority issues can be, particularly when the “authority” to sign issue comes into play.
Practical Application to Common Forms and Documents
Each year, tax departments undertake many common tax filings. While the CCM illustrates the lengths to which the IRS will go to preserve a taxpayer’s capacity to execute a statute extension, this same analysis may be less likely to prevail when the result would be taxpayer favorable, especially where it appears that the authority to sign is uncertain under state law. Nevertheless, the CCM provides a framework for analyzing what rules apply in tricky signature situations. Tax executives should give thought early in the processes to signature authority issues and keep potential problem areas in mind. By performing a state law analysis upfront, rather than after the fact, taxpayers will avoid having to rely on other common law principles of ratification, estoppel, or contract reformation to uphold the validity of their signature authority. Some of these common filings where signatory authority issues arise are addressed below.
Nevertheless, the CCM provides a framework for analyzing what rules apply in tricky signature situations.
Tax Returns, Statute Extensions, and Powers of Attorney
The general rules for signing returns, extensions of statutes of limitation, and powers of attorney are set forth above. But, as the CCM suggests, identifying the correct signatory is more complicated when a corporation ceases to exist by reason of a merger, reorganization, or liquidation. In these instances, the successor corporation or substitute agent must file the return on behalf of the former corporation or consolidated group, execute the associated consent to extend the period of limitations, or designate a representative.23 Further, tax executives should be aware of wind-up provisions that may impact the capacity to sign documents, such as statute extensions, in cases where a corporation has been dissolved under state law,24 or when Tax Equity and Fiscal Responsibility Act (TEFRA) partnerships are involved.25
Closing agreements are generally reflected on Form 866, Agreement as to Final Determination of Tax Liability, or Form 906, Closing Agreement on Final Determination Covering Specific Matters.26 For corporations, an authorized officer must sign the agreement.27 For partnerships, a general partner duly authorized to act for the partnership may sign. Signature authority becomes more complicated in cases of a TEFRA partnership,28 where, as discussed above, a merger, reorganization, or dissolution has occurred or in instances when a representative of the taxpayer signs the agreement.29
Elections, Certifications, and Applications
This article only scratches the surface of the range of other filings, applications, elections, and documents that taxpayers might need. These miscellaneous documents generally each possess their own authorization rules and requirements, which are commonly set forth in an instruction, a publication, on the form itself, or in the regulations.30 Analyzing these distinct rules and requirements up front can avoid controversy.
For instance, taxpayers make entity classification (“check the box”) elections on Form 8832. Form 8832 must be signed by “[e]ach member of the electing entity who is an owner at the time the election is filed” or, alternatively, by “[a]ny officer, manager, or member of the electing entity who is authorized (under local law or the entity’s organizational documents).”31 However, changes in classification signed at the owner level must be signed by “each person who was an owner on the date” certain transactions are deemed to occur and who are not owners “at the time the election is filed.”32 A similar requirement exists for retroactive elections.33
Tax executives should be aware of wind-up provisions that may impact the capacity to sign documents.
The Bottom (Dotted) Line
Waiting until late in the day to identify authorized signatories might have caused the hypothetical tax executive above to scramble. This is especially true if the entity at issue was filing a retroactive election or changing a prior election and the entity’s ownership had recently changed.
Although it may be tempting to do so, tax executives should not view signing on the dotted line as a mere formality. Identifying the wrong signatory has a host of negative consequences, and identifying the proper one is often complex and may involve analyzing more than the code and regulations, particularly when the corporate structure has changed, such as following mergers, dispositions, bankruptcies, and liquidations. As illustrated by the CCM, the IRS is occasionally forced to attempt to bolster its conclusions about uncertain signature authority issues with common law principles of agency and equitable estoppel. Should a taxpayer be forced to likewise look beyond federal tax and state law provisions to defend signature authority on one of its own documents, the same result may not apply. Tax executives should therefore ask these questions sooner rather than later to ensure the signatory on the dotted line is authorized to act.
Jennifer Breen and Sheri Dillon are partners and Michael Kummer is an associate at Morgan, Lewis, & Bockius LLP in Washington, D.C.
- Doll v. Commissioner, T.C. Memo. 1965-191 (return invalid when signed by preparer with taxpayers’ names typewritten), aff’d, 358 F.2d 713 (3d Cir. 1966); Agri-Cal Venture Assocs. v. Commissioner, T.C. Memo. 2000-271 (partnership return invalid when signed by treasurer of non-partner agent).
- I.R.C. § 7121(a) (authorizing the Secretary to enter into a written agreement “with any person relating to the liability of such person (or of the person or estate for whom he acts)”); Rev. Proc. 68-16, 1968 C.B. 770 (establishing procedures for executing closing agreements on behalf of various entities and taxpayers).
- Treas. Reg. § 301.7701-3(c)(2)(i) (providing that entity classification elections must be signed by “[e]ach member of the electing entity who is an owner at the time the election is filed” or “[a]ny officer, manager, or member of the electing entity who is authorized (under local law or the entity’s organizational documents)”).
- Vaira v. Commissioner, 52 T.C. 986, 1004-05 (1969) (failure-to-file penalties imposed—and reasonable cause defense denied—where return was unsigned but submitted with check for payment of tax), rev’d on other grounds, 444 F.2d 770 (3d Cir. 1971).
- Compare I.R.C. § 6062 (corporations) with I.R.C. § 6063 (partnerships).
- See Cambridge Research & Dev. Grp. v. Commissioner, 97 T.C. 287 (1991) (Connecticut statute authorized non-TMP general partner to consent to an extension of the statute of limitations on behalf of the partnership and the partners); Alumax, Inc. v. Commissioner, 109 T.C. 133, 196-200 (1997) (applying agency principles and finding that entities had the ability under state law to extend the periods of limitations for a group of entities), aff’d, 165 F.3d 822 (11th Cir. 1999).
- See, e.g., Treas. Reg. § 301.7701-3(c)(2)(i)(B) (check-the-box election may be made by any officer, manager, or member who is authorized to do so under local law or the entity’s organizational documents).
- I.R.C. § 6061(a).
- I.R.C. § 6062 (emphasis added); Treas. Reg. § 1.6062-1(a)(1).
- Treas. Reg. § 1.6062-1(b). It is noteworthy that the code and regulations provide that forms and instructions may contain substantive law in this area. In other contexts, it is well settled that IRS forms and instructions are not binding authority. Weiss v. Commissioner, 129 T.C. 175, 177 (2007); Casa de La Jolla Park Inc. v. Commissioner, 94 T.C. 384, 396 (1990); Green v. Commissioner, 59 T.C. 456, 458 (1972); Adler v. Commissioner, 330 F.2d 91 (9th Cir. 1964).
- I.R.C. § 6063.
- Treas. Reg. § 1.6063-1(a).
- I.R.C. § 6062; I.R.C. § 6063.
- Treas. Reg. § 1.6062-1(c); Treas. Reg. § 1.6063-1(b).
- For instance, extending the statute of limitations on assessment of tax attributable to partnership items of a TEFRA partnership has an additional nuance. Any partner may consent to extend the statute of limitations for assessing tax attributable to partnership items against that partner. I.R.C. § 6229(b)(1)(A). However, only the tax matters partner (or any other person authorized by the partnership in writing) may consent to extend with respect to all partners the statute of limitations for assessing tax attributable to partnership items. I.R.C. § 6229(b)(1)(B). See also Field Attorney Advice 2013-11-014 (June 29, 2012) (discussing authority to sign Form 870-LT on behalf of a limited liability company and TEFRA partnership).
- I.R.C. § 6062 (corporations), Cambridge Research & Dev. Grp., 97 T.C. at 295-96 (partnerships), Rev. Rul. 83-41, 1983-1 C.B. 349 (various entities), clarified and amplified by Rev. Rul. 84-165, 1984-2 C.B. 305.
- CCM 2015-23-01F (June 5, 2015).
- Had Officer One signed in his capacity as Corporation B’s president, presumably no issue would have existed with his capacity to sign.
- As discussed below, Consent One on its face apparently applied to Corporation A’s Year Four. See infra note 22 and accompanying text. However, based on “clear and convincing evidence” that the parties intended Consent One to apply to Corporation A’s Year Three, Chief Counsel opined that Consent One could be reformed to encompass Year Three.
- See Rev. Rul. 83-41, 1983-1 C.B. 349.
- Chief counsel also analyzed whether Corporation B would be equitably estopped from denying its own acts or representations. Chief counsel applied the four elements of equitable estoppel set forth in Union Texas International Corp. v. Commissioner, 110 T.C. 321 (1998): (1) a false representation or wrongful, misleading silence, (2) an erroneous statement of fact, not of opinion or law, (3) reasonable detrimental reliance on the wrongful acts or statements, and (4) no knowledge of the true facts by the party claiming the benefits of estoppel. Id. at 327. Chief counsel found that all but the fourth element of estoppel were present. The fourth was not because the IRS knew the true facts: that Corporation A merged into Corporation B before the Form 2848 and Consent One were signed.
- See supra note 19. See also Hartland Mgmt. Servs. Inc. v. Commissioner, T.C. Memo. 2015-8 (reforming Form 872 to correct tax year subject to statute of limitations extension and conform to the intent of the parties). While Form 872 is not a contract, contract principles are relevant because I.R.C. § 6501(c)(4) requires the consent to be a written agreement between the secretary and the taxpayer. Hartland Management Servs. Inc., T.C. Memo. 2015-8 at *9-10 (citing Piarulle v. Commissioner, 80 T.C. 1035, 1042 (1983)).
- Pertinent federal tax authorities include Rev. Rul. 54-17, 1954-1 C.B. 160 (liquidation), Rev. Rul. 59-399, 1959-2 C.B. 488 (reorganization), and Rev. Proc. 2002-43, 2002-2 C.B. 99 (determination of a substitute agent for consolidated group).
- See Rev. Rul. 83-41, 1983-1 C.B. 349.
- I.R.M. 22.214.171.124.4.1.1(3).
- See also Form 870-AD Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment as an additional example of an agreement that is signed by both the taxpayer and the IRS that determines a taxpayer’s tax liability with finality.
- Rev. Proc. 68-16, 1968-1 C.B. 770, § 6.07; I.R.M. 126.96.36.199.3(4)(A).
- See I.R.M. 188.8.131.52.
- Rev. Proc. 68-16, § 6.07 (requiring certain evidence demonstrating authority to be attached to the agreement).
- Elections pursuant to I.R.C. § 338 to make qualified stock purchases and pursuant to I.R.C. § 1362 to be classified as an S corporation, are two examples of additional elections possessing specific signature requirements.
- Treas. Reg. § 301.7701-3(c)(2)(i).
- Treas. Reg. § 301.7701-3(c)(2)(iii).
- Treas. Reg. § 301.7701-3(c)(2)(ii).