Leslie Book is a contributing author with Tax Analysts through the Procedurally Taxing blog, which he co-founded in 2013. He is a professor of law at the Villanova University Charles Widger School of Law, a senior fellow at the Center for Taxpayer Rights, and the successor author for the treatise IRS Practice and Procedure, originally authored by Michael Saltzman.
In this post, Book discusses a case in which a district court held that a couple’s tax returns were invalid as both returns and refund claims because they showed zero income without supporting information and contradicted the Forms W-2 provided by their employers.
The recent case of Denning v. Treasury, No. 3:23-cv-00149 (D. Nev. 2024), highlights a longstanding issue in tax procedure: When is a document purporting to be a return a return? Or for that matter, when is an amended return a valid refund claim? Drilling down deeper, Denning implicates the so-called zero return issue. If a wage-earning taxpayer signs a Form 1040 or 1040X under penalties of perjury but essentially puts zeros where the Form 1040 or 1040X asks the taxpayer to disclose their income, is that enough to trigger a court finding that the return is not a valid return or claim for refund?
The facts in Denning are straightforward. Between 2015 and 2018, the Dennings filed joint returns reporting combined annual incomes ranging from $126,000 to $220,000. In 2019, they had a change of heart and decided that their wages did not constitute income subject to federal income tax. They then filed amended income tax returns (1040Xs), which for 2016-2018 reflected no income and in 2015 reflected about $2,000. In 2019 and 2020, they filed original joint returns reflecting no earned income, despite receiving considerable wages from their employers. The Dennings sought over $150,000 in total refunds in their 2015-2018 amended returns and the 2019-20 original returns.
The IRS issued a disallowance letter for at least some of the years at issue (the opinion does not clarify if the disallowance addressed all the years). The Dennings then filed a complaint in federal district court in Nevada, asking the court to find that they overpaid their taxes due to their belief that the wages were not income for federal income tax purposes.
Now of course the Dennings’ substantive position is ludicrous and is typical tax protestor nonsense. Yet the case sweeps in an interesting tax procedure issue and the Ninth Circuit case of United States v. Long, which has been somewhat of an outlier in tax procedure. The Long case is discussed in detail below.
In response to the complaint in Denning, the government filed a motion to dismiss based on lack of subject matter jurisdiction. The argument that the government essentially made is that the Forms 1040X and 2019 and 2020 Forms 1040 were not valid refund claims, as they failed to comply with regulations under section 6402 that require claims to apprise the government about the nature of the claims. In particular, the government argued that the claims were not “properly executed” and did not “set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to appraise the Commissioner of the exact basis thereof.” Reg. sections 301.6402–3(a)(5) and -2(b)(1).
In finding for the government, the opinion cited a considerable amount of case law that has held that returns or claims with the taxpayer just filling in zeros is insufficient to either constitute a valid tax return or refund claim. Here is a snippet from the opinion:
Many courts have held that “forms that lack essential information — particularly, forms that are replete with zeros in place of a taxpayer's income — are not tax returns within the meaning of the Internal Revenue Code and thus cannot serve as a basis for a tax refund suit.” Waltner v. United States , 679 F.3d 1329, 1334 [109 AFTR 2d 2012-1833] (Fed. Cir. 2012); see , e.g., Kehmeier v. United States, 95 Fed.Cl. 442, 445 [106 AFTR 2d 2010-7257] (2010) (“tax returns reporting zero wages cannot serve as claims for refund because they fail to include information upon which a tax could be calculated.”); Hamzik v. United States, 64 Fed.Cl. 766, 768 [95 AFTR 2d 2005-1416] (2005) (“Plaintiff's Form 1040 is replete with zeros in response to most inquiries—except the amount of tax withheld and refund claimed—and thus failed to include any reliable information upon which the IRS could accurately calculate his taxes, or the amount of taxes he owed or had overpaid.... [and] under no circumstances can it be rationally construed as a return.”) (internal quotation marks omitted).
The opinion cites a bunch of other cases as well, with the courts generally holding that so-called zero returns are not returns for tax purposes. Careful readers will note that I use the lawyerly generally in my description, and that is because there is a Ninth Circuit case, United States v. Long, 618 F.2d 74 (9th Cir. 1980), that is arguably inconsistent with that body of law. Long involved a tax protestor who was convicted of willful failure to file income tax returns for the years 1972, 1973, and 1974. Long had contended that he filed returns for those years and on those returns inserted zeros in the spaces reserved for entering exemptions, income, tax, and tax withheld. He also claimed to have sent in a pamphlet describing the basis for his zero returns. The IRS had no record of the returns, though Long produced copies at trial. The district court held that although Long may have filed papers conforming to the copies he introduced at trial, those documents were not “returns” because the Forms 1040 filled in with zeros did not furnish information from which tax liability could be calculated.
In reversing the district court, in Long the Ninth Circuit held that the “zeros entered on Long's tax forms constitute ‘information relating to the taxpayer's income from which the tax can be computed.’ The I.R.S. could calculate assessments from Long's strings of zeros, just as it could if Long had entered other numbers. The resulting assessments might not reflect Long's actual tax liability, but some computation was possible.”
As the district in Nevada is in the Ninth Circuit, the Dennings relied on Long to argue that their zero Forms 1040 and 1040X were valid returns and refund claims. The district court disagreed:
Long concerned a tax protestor who submitted tax forms containing zeros in the spaces reserved for “income, tax, and tax withheld” and was subsequently convicted for willful failure to file income tax returns under a criminal statute (26 U.S.C. section 7203) that is not at issue here. In Long, the Ninth Circuit ultimately held that the government, which had destroyed the defendant's tax records, had failed to prove the elements of the offense. Long, 618 F.2d at 76. Long says nothing about section 7422(a), federal jurisdiction, or the waiver of sovereign immunity. It is inapposite to the present case and provides no basis for establishing federal jurisdiction over Plaintiffs' claims.
Conclusion
The opinion sidesteps Long’s rationale by limiting it to its narrow circumstances. While the Denning opinion is in line with the way that most other courts have addressed so-called zero returns, it is arguably inconsistent with Long’s rationale, which did not explicitly depend on that case arising in a different context, to find that the returns were sufficient to inform the IRS.
Denning also sweeps in by implication some broader issues, including questions concerning whether any of the requirements under section 7422 for refund claims are still jurisdictional under current law (for more on that, see Carl Smith’s post, “DOJ Wins One Case and Loses Motions in Another Where POAs Signed First Refund Claims for Taxpayers, Part II”).
Whether any of the section 7422 requirements are jurisdictional is of some moment in Denning, as the government’s issuance of a claim disallowance would amount to a waiver. As the government cannot waive a jurisdictional requirement, a disallowance would not cure a failure to submit a valid claim if the claim requirement were jurisdictional. Without directly discussing the jurisdictional issue, the Denning opinion notes that the government was unable to waive the requirement to file a valid refund claim, as it was for Congress, not the IRS, to decide when to waive sovereign immunity.
Denning highlights how important procedural issues may surface even in cases where the underlying substantive issues are frivolous and are presented by pro se litigants. I suspect that in cases arising in the Ninth Circuit, the government will embrace the district court’s approach to limit the reach of Long. I also suspect that some courts will struggle to reconcile Long in this context.