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CPA Changes Return After Taxpayer Signs It; IRS Nullifies Return

In Program Manager Technical Advice 2011-013, the IRS determined that a tax return that was altered by a CPA without the taxpayer’s knowledge was a “nullity” because the amount of the claimed chartible deduction was unknown and unverified by the taxpayer. In the stated facts, a CPA provided his client a copy of his return which was signed by the taxpayer. However, subsequent to the client signing the return, the CPA changed the return by increasing the amount of charitable contributions.

The general test for establishing a valid return was outlined in Beard v. Com., 58 AFTR 2d 86-5290 , where the Sixth Circuit, affirming the Tax Court, held that for a document to constitute a valid return, it must:
• contain sufficient data to calculate tax liability;
• purport to be a return;
• be an honest attempt to satisfy the requirements of the tax law; and;
• be executed under penalty of perjury.

Since the signed and verified return was not the document that was sent to the IRS, and the taxpayer was not aware of the amended charitable contribution amount added in by the CPA, the taxpayer did not execute his return under penalty of perjury. Thus, the signature requirement was not met, and the document did not constitute a return. The IRS determined that since the fraudulently altered return was a nullity, the affected taxpayer is treated as if no return has been filed. Therefore, the taxpayer whose return was fraudulently altered shouldn’t file a Form 1040X. Instead, the taxpayer should file an accurate Form 1040. Finally, the IRS noted that since no return was filed, no accuracy-related or civil fraud penalties could be imposed against the taxpayer. However, criminal fraud penalties under could potentially apply.