“Beard” Saves Taxpayer When IRS Rejected Return

A taxpayer must submit a refund claim during the "limitations period." The limitations period ends on the later of: (1) three years from the time the relevant return is filed, or (2) two years from the time the tax was paid (limitations period). (Code Sec. 6511(a))

The taxpayer, James Willetts, got an extension, to October 15, 2015, to file his 2014 return. Willetts eventually mailed this return, on which he claimed a refund, to the IRS on April 14, 2018. The IRS received Willetts' 2014 Form 1040 on May 2, 2018, but did not process the return after deeming it "a return that may have been the result of potential identity theft."

The IRS did not dispute that Willetts had an overpayment for 2014. Rather, the IRS argued that Willetts failed to file a refund claim within the limitations period.

According to the IRS, Willetts' 2014 return wasn't "filed" on April 14, 2018, because the IRS rejected that return. Instead, the IRS argued, Willetts filed his 2014 return on July 29, 2019, when he submitted to the IRS a copy of his 2014 Form 1040. Therefore, Willetts failed to file his refund claim before the limitations period ended on October 15, 2018.

The Tax Court Determined That Willetts' 2014 Return Was "Properly Filed" On April 14, 2018.

First, the Tax Court determined that the 2014 Form 1040 Willetts submitted to the IRS on April 14, 2018, was a "return" under the test in Beard, (1984) 82 TC 766. Under the Beard test, a document is a return for limitations purposes if:

1. there is sufficient data to calculate a tax liability,

2. the document purports to be a return,

3. there is an honest and reasonable attempt to satisfy the requirements of the tax law, and

4. the taxpayer executed the document under penalties of perjury.

Next, the Tax Court determined that Willetts' 2014 return was filed on or before May 2, 2018. According to the Court, a return is considered filed when it is "delivered, in the appropriate form, to the specific individual or individuals identified in the Code or Regulations." (Allnut, TC Memo 2002-311)

In addition, a valid return is deemed filed on the day it is delivered, regardless of whether the IRS accepts it. (Blount, (1986) 86 TC 383)

The return Willetts mailed to the IRS on April 14, 2018, was delivered to the IRS on May 2, 2018. Thus, Willetts return was filed on the date it was delivered to the IRS, May 2, 2018. 

Since Willetts refund claim was embedded in his 2014 return his refund claim was filed concurrently with that return. Thus, Willetts' refund claim was filed on May 2, 2018, before the three-year period of limitation expired on October 15, 2018.