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, jeopardizing closing agreements and other settlements, nullifying a tax election, and triggering penalties.
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. Moreover, myriad state statutes and fact-intensive common law principles play a role in this area and supplement existing federal tax law. In some instances, federal tax law expressly looks to local law or an entity’s organizational documents to determine who has proper signature authority. 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.
Written by Jennifer Breen, Sheri Dillon, and Michael Kummer, 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.