Improperly signed partnership return was invalid but did not control a partner's assessment period

Plain-English summary

A limited liability company's Form 1065 was signed with the name of a foreign entity, apparently by someone other than a partner or member manager. Chief Counsel advised that the form was not a valid partnership return because section 6063 and related guidance require an authorized partner, member manager, fiduciary, or qualifying representative to sign. A preparer's signature cannot substitute on the partnership signature line, and a person signing for an entity should use the person's own name. Even so, the invalid partnership return did not determine the limitations period for assessing a partner. Under section 6501(a), that period runs from the return of the taxpayer whose liability is being assessed.

Ruling snapshot

• Question: Was the improperly signed Form 1065 valid, and which return started the assessment limitations period?
• Outcome: Advice given. The partnership return was invalid, but the assessed taxpayer's own return controlled the limitations period.
• Key authorities: IRC §§ 6011, 6031, 6063, and 6501; Treas. Reg. §§ 1.6063-1(a), 301.7701-3(b)(1)(ii), and 601.504(a)(6)

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       memorandum
       Number: 201425011
       Release Date: 6/20/2014
       CC:PA:01:MEHara                                  Third Party Communication: None
       POSTF-123972-12                                  Date of Communication: Not Applicable

UILC: 6063.00-00

date: February 21, 2014

 to:   Joy E. Gerdy Zogby
       General Attorney (Washington)
       (Large Business & International)

from: Bridget Tombul
Senior Technician Reviewer
(Procedure & Administration)

subject: Signatures on Partnership Returns

       This Chief Counsel Advice responds to your request for assistance. This advice may
       not be used or cited as precedent.

       LEGEND

       State A          =   --------------
       State B          =   -----------
       Country C        =   ------------
       Foreign Entity   =   ------------------------------------------------

       ISSUE

       Whether a Form 1065, U.S. Return of Partnership Income, that is not signed by a
       general partner or a limited liability company member manager is a valid return for
       purposes of starting the running of the period of limitations on assessment.

       CONCLUSION

       A Form 1065 that is not signed by a general partner or a limited liability company
       member manager is not a valid partnership return, Agri-Cal Venture Associates v.
       Commissioner, T.C. Memo 2000-271; Beard v. Commissioner, 82 T.C. 766, 777 (1984),
       aff'd, 793 F.2d 139 (6th Cir. 1986). Although the partnership return is invalid, the return
       that starts the running of the limitations period at issue is that of the taxpayer whose

POSTF-123972-12 2

liability is being assessed; not that of the partnership or limited liability company whose
return might also report the transaction that gives rise to the liability. I.R.C. § 6501(a);
Bufferd v. Commissioner, 506 U.S. 523 (1993).

FACTS

The Service received a Form 1065 for a State A LLC.1 The State A LLC is owned ----%
by a State B entity and --% by a Country C foreign entity. The State B entity is
incorporated as a “corporation sole” and claims to have no members.2 It is unclear who
owns the State B entity. The foreign entity is owned by an individual taxpayer and a
trust which the taxpayer appears to control.

The preparer signature line for the Form 1065 is signed by a tax preparer. Someone
signed the partnership signature line as “Foreign Entity,” the name of the foreign entity.
The individual taxpayer, who generally acted for the foreign entity, implied in an
interview that he did not file the return and that someone from the tax preparer’s office
must have signed the partnership signature line.

LAW AND ANALYSIS

I. The State A LLC Partnership return is not valid because it was not signed by a
partner or a limited liability company member.

Who must sign partnership returns
I.R.C. § 6011(a) sets forth the general rule that ”[e]very person required to make a
return or statement shall include therein the information required by such forms or
regulations.”

1
An LLC can be taxed as either a partnership or a corporation. Further, an LLC owned by a single-member owner
can elect to be disregarded for federal income tax purposes, filing neither a corporate or partnership return. See
Treas. Reg. § 301.7701-3(b)(1)(ii).

2
A taxpayer may not exclude income from taxation based on the argument that the taxpayer’s income belongs to a
“corporation sole” created by the taxpayer for the purpose of avoiding taxes on the taxpayer’s income. Rev. Rul.
2004-27, 2004-1 C.B. 625. In addition to having to pay the actual tax due plus statutory interest, individuals who
claim tax benefits on their returns based on a “corporation sole” scheme or other frivolous arguments face substantial
civil and criminal penalties. Potentially applicable civil penalties include: (1) the I.R.C. § 6662 accuracy-related
penalty, which is equal to 20 percent of the amount of taxes the taxpayer should have paid; (2) the I.R.C. § 6663
penalty for civil fraud, which is equal to 75 percent of the amount of taxes the taxpayer should have paid; (3) a $5,000
penalty under I.R.C. § 6702 for filing a frivolous return; and (4) a penalty of up to $25,000 under I.R.C. § 6673 if the
taxpayer makes frivolous arguments in the United States Tax Court.

Taxpayers relying on this scheme also may face criminal prosecution for: (1) attempting to evade or defeat tax under
I.R.C. § 7201 for which the penalty is a fine of up to $100,000 and imprisonment for up to 5 years; or (2) making false
statements on a return under I.R.C. § 7206 for which the penalty is a fine of up to $100,000 and imprisonment for up
to 3 years.
POSTF-123972-12 3

I.R.C. § 6063, entitled “Signing of partnership returns,” provides that “[t]he return of a
partnership made under section 6031 shall be signed by any one of the partners. The
fact that a partner’s name is signed on the return shall be prima facie evidence that
such partner is authorized to sign the return on behalf of the partnership.”

Treas. Reg. § 1.6063-1(a) provides that "[r]eturns, statements, and other documents
required to be made by partnerships under the provisions of subtitle A or F of the Code,
or the regulations thereunder, with respect to any tax imposed by subtitle A of the Code
shall be signed by any one of the partners."

Limited Liability Company
Neither the Internal Revenue Code (Code) nor Treasury Regulations deal with
signatures by LLC members, however, the instructions for both the Form 1065 and IRS
Publication 3402, Taxation of Limited Liability Companies, (March 2010) state that “only
a member manager of an LLC can sign the partnership tax return. ... A member
manager is any owner of an interest in the LLC who, alone or together with others, has
the continuing authority to make the management decisions necessary to conduct the
business for which the LLC was formed. If there are no elected or designated member
managers, each owner is treated as a member manager.” Pub. 3402 at p. 2.

The 2012 Instructions for Form 1065 at page 4 provides:

    Who Must Sign
    General Partner or LLC Member Manager
    Form 1065 is not considered to be a return unless it is signed by a
    general partner or LLC member manager. When a return is made
    for a partnership by a receiver, trustee or assignee, the fiduciary
    must sign the return, instead of the general partner or LLC member
    manager. Returns and forms signed by a receiver or trustee in
    bankruptcy on behalf of a partnership must be accompanied by a
    copy of the order or instructions of the court authorizing signing of
    the return or form.

In this case, the partnership signature line is signed “Foreign Entity,” the name of the
foreign entity, and not the name of the individual taxpayer that owns it or controls the
trust. The individual taxpayer denies signing the return and alleges that someone from
the tax preparer’s office must have signed the partnership signature line. Because the
partnership return was not signed by a partner or LLC member manager, the Form 1065
is invalid. See Agri-Cal Venture Associates v. Commissioner, T.C. Memo 2000-271 (a
Form 1065 not signed by any partner was not a valid partnership return).3
3
See Weiner v. United States, 255 F.Supp.2d 624, 645 (S.D. Tex. 2002) (“The IRC and case law provide
no authority approving the substitution of the signature of an authorized agent who is not a partner on a
partnership return”); Burford Oil Co. v. Comm'r of Internal Revenue, 153 F.2d 745, 746 (5th Cir.
1946)(requirement that a corporate tax return must be sworn to by the president, vice president or other
POSTF-123972-12 4

An officer, employee of a partnership or LLC, or the return preparer of the partnership
return is not a permissible signatory on the taxpayer signature line of the partnership's
tax return.4 The Code, Treasury Regulations and IRS guidance all require, and only
make reference to, the signature of a partner or member manager on the Form 1065.5
In Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986),
the Tax Court listed four criteria for determining "whether a document is sufficient for
statute of limitations purposes.”6 One of the criteria is that "the taxpayer must execute
the return under penalties of perjury." See also Lucas v. Pilliod Lumber Co., 281 U.S.
245, 249 (1930) ("Here assent that the statute [of limitations] might begin to run was
conditioned upon the presentation of a return duly sworn to."). Thus, a partnership
return signed by a return preparer on the partnership signature line is not a valid return.

Another corollary issue is whether the return is invalid because the return is signed with
the name of the foreign entity, rather than with the name of the individual person.
Although we could find no case directly on point, it is our view that the signer should
sign by writing his name, rather than the name of the business entity. This is because
only a natural person may sign tax returns, as opposed to an entity. A business entity
must act through its authorized representatives. In other contexts, inserting the name of

principal officer and by the treasurer, assistant treasurer, or chief accounting officer, is mandatory; return
signed only by treasurer is not valid); Elliott v. Comm'r of Internal Revenue, 113 T.C. 125, 128–29 (1999)
(return that did not comply with signature requirements was not valid return and did not trigger running of
limitations period for assessment).
4
The authority to sign a return or a superseding return may not be delegated to another person unless this person
falls within the authorized group (e.g., a partner may not delegate the authority to a non-partner to sign a return).

Further under Treas. Reg. §601.504(a)(6) the Filing of a Power of Attorney does not authorize the recognized
representative to sign a tax return on behalf of the taxpayer unless such act is both—

     (i) Permitted under the Internal Revenue Code and the regulations thereunder (e.g., the authority to sign
     income tax returns is governed by the provisions of § 1.6012-1(a)(5) of the Income Tax Regulations);

     (ii) Specifically authorized in the power of attorney (Use of this exception is extremely limited).
     Treas. Reg. § 1.6012-1(a)(5) permits a recognized representative to sign a tax return on behalf of the
     taxpayer only in the following circumstances:

              a) Disease or Injury,
              b) Continuous absence from the U.S.(including Puerto Rico), for a period of at least
                 60 days prior to the date required by law for filing the return, or
              (c) Specific permission is requested of and granted by the IRS for other good cause.

5
Where the partner or member-manager is not a natural person (that is, the partner is a limited liability company, or
trust), an authorized official of this entity signs either for the partnership or LLC. And where all of the partners or
member-managed LLCs are other business entities, one must look to see who is authorized to sign for the entity.
6
82 T.C. at 777. For a document to be considered a valid return under Beard, the document must: (1) contain
sufficient data to allow calculation of tax, (2) purport to be a return, (3) represent an honest and reasonable attempt to
satisfy the requirements of the tax law, and 2) be signed under penalty of perjury.
Id.
POSTF-123972-12 5

business entity on a signature line did not operate as a signature. See Kroeze v.
Chloride Group Limited, 572 F.2d 1099, 1105-06 (5th Cir. 1978) (name of brokerage firm
typed in the space provided on the transmittal letter for the name of the registered
owner did not constitute a signature); Elmer Fox & Co. v. Commercial Union Ins. Co. of
New York, 274 F.Supp 235, 239-40 (D.C. Colo. 1967) (rubber stamp endorsement with
words “For deposit only” with name and address of company is not a signature). The
primary object of a written signature is identification, and this goal is subverted when a
company name is used rather than the person who signed the document. See Sinnot v.
Louisville & N.R. Co., 104 Tenn. 233, 56 S.W. 836, 838 (Tenn. 1900).

II. Although the partnership return is invalid, the return that starts the running of
the limitations period at issue is that of the taxpayer whose liability is being
assessed, and not that of the partnership or limited liability company whose
return might also report the transaction that gives rise to the liability.

Partners’ Return Starts Limitation Period for Partner
The return of a pass-through entity, such as a partnership, is not the “return” of the
partner for purposes of starting the assessment period of I.R.C.§ 6501(a). The return
that starts the running of the limitations period at issue is that of the taxpayer whose
liability is being assessed, and not that of the partnership or limited liability corporation
whose return might also report the transaction that gives rise to the liability. See Siben
v. Commissioner, 930 F.2d 1034, 1035 (2d Cir.), cert. denied, 502 U.S. 963 (1991).

Similarly, in Bufferd v. Commissioner, 506 U.S. 523 (1993), the Supreme Court held
that the limitations period for assessing the income tax liability of an S corporation
shareholder runs from the date on which the shareholder’s return is filed, not the return
of the S corporation. The Court reasoned that then S corporation was a pass-through
entity with its income, losses, deductions, and credits flowing through and being
attributable to the individual shareholders. The Taxpayer Relief Act of 1997
incorporated the Supreme Court’s ruling in Bufferd in the statutory language of Section
6501(a) by providing that a return for purposes of the statute of limitations on
assessment is “the return required to be filed by the taxpayer and does not include a
return of any person from whom the taxpayer has received any items of income, gain,
loss, deduction or credit.”7

This writing may contain privileged information. Any unauthorized disclosure of this
writing may undermine our ability to protect the privileged information. If disclosure is
determined to be necessary, please contact this office for our views.

Please call (202) 622-4910 if you have any further questions.

7
I.R.C. § 6501(a), as amended by the Taxpayer Relief Act of 1997, § 1248(a), for tax years after August 5, 1997.