How to bind without getting in one: avoiding controversy over signature authority issues.

• Author: Breen, Jennifer E.

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, "[statements 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...