Tax Court in Brief | Collins v. Comm’r | Innocent Spouse Requests a Refund for Which He Did Not Pay; Denied

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Tax Litigation:  The Week of September 26th, 2022, through September 30th, 2022

Collins v. Comm’r, T.C. Summary Opinion 2022-20| September 29, 2022 | Paris, Judge | Dkt. No. 14017-17S

Summary:  This decision is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case. But, in any event, here is the Tax in Brief Blog on the subject.

This opinion regards innocent spouse relief. The IRS granted relief under section 6015(c) for an understatement of tax on Stephen Collin’s (petitioner’s) jointly filed 2013 return but denied a request for a refund. Petitioner filed a Petition to request a refund of amounts he paid to his former spouse (Arnette Poore) and she remitted in payment of the liability. Petitioner and Poore were married from 1980 until their divorce in 2014. They timely filed a joint tax return for 2013, on which they reported a tax liability of $33,044 and withholding of $27,440. There was an underpayment of tax at the time of filing of $5,604, excluding penalties and interest. Pursuant to the divorce decree, petitioner was ordered to pay the underpayment of $5,604. The IRS’s transcript of petitioner’s account reflects that the underpayment was satisfied by the end of 2015. The IRS issued a notice of deficiency to petitioner and Poore arising from Poore’s financial conduct of which Petitioner was not aware until he received the notice of deficiency from the IRS (the understatement). The state court ordered Poore to pay the additional tax due for 2013, including any penalties and interest. The state court, through a detailed order quoted in this opinion, also ordered Petitioner to reimburse Poore for one-half of the additional tax by increasing his spousal support payment by $500 per month until his share was fully paid. Petitioner paid the additional $500 beginning September 1, 2016, and continuing for seven to nine months, until the state court ordered the increased payment to cease. Poore made a payment of $3,945.14 to satisfy the 2013 joint income tax liability on November 23, 2016, directly to the IRS. The Petitioner timely filed a Petition in which he requests a refund of $3,000 for amounts paid to Poore that were used to satisfy the liability.

Key Issues: Whether Petitioner was entitled to a refund for amounts paid to his former spouse pursuant to a state court decree and that were used by his former spouse to satisfy federal income tax liability?

Primary Holdings: No. Petitioner, the requesting spouse, did not make, nor was he the source of any overpayment, and thus, the request for a refund was denied.

Key Points of Law:

Married Joint Tax Filers. Married taxpayers may elect to file a joint federal income tax return. IRS § 6013(a). If a joint return is made, generally each spouse is jointly and severally liable for the entire tax due on their aggregate income for that year. § 6013(d)(3). In certain circumstances, however, section 6015 allows a spouse to obtain relief from joint and several liability. § 6015(a).

Innocent Spouse Relief. Under section 6015(a), a spouse may seek relief from joint and several liability under section 6015(b) or, if eligible, may allocate liability according to provisions set forth in section 6015(c). If a taxpayer does not qualify for relief under section 6015(b) or (c), the taxpayer may seek equitable relief under section 6015(f). A taxpayer may seek relief from joint and several liability by raising the matter as an affirmative defense in a petition for redetermination of a deficiency or by filing a stand-alone petition challenging the IRS’s final determination denying the taxpayer’s claim for such relief (or his failure to rule on the taxpayer’s claim within six months of its filing). See IRC § 6015(e)(1); Maier v. Commissioner, 119 T.C. 267, 270–71 (2002), aff’d, 360 F.3d 361 (2d Cir. 2004).

Evaluation of Innocent Spouse Relief. In determining whether a taxpayer is entitled to relief under section 6015(b), (c), or (f), the Tax Court applies a de novo standard and scope of review. Porter v. Commissioner, 132 T.C. 203, 210 (2009). The taxpayer bears the burden of proving that he or she is entitled to equitable relief under section 6015(f). See Porter, 132 T.C. at 210; see also Rule 142(a)(1).

One-Half. Section 6015(g)(1) provides: “Except as provided in paragraphs (2) and (3), notwithstanding any other law or rule of law (other than section 6511, 6512(b), 7121, or 7122), credit or refund shall be allowed or made to the extent attributable to the application of this section.” Section 6015(g)(3) limits the availability of a credit or refund, providing that “[n]o credit or refund shall be allowed as a result of an election under subsection (c).” Thus, a taxpayer, such as Collins, may only be eligible for a refund if he or she is entitled to relief under section 6015(b) or (f). Where the taxpayer does not demonstrate entitlement to a refund, or does not remit any tax payments to the IRS with respect to the understatement, the issue is not one for which innocent spouse relief will honor. Before any taxpayer may be allowed a refund or credit, there must be a determination that the taxpayer made an overpayment. Minihan v. Commissioner, 138 T.C. 1, 8 (2012); Cutler v. Commissioner, T.C. Memo. 2013-119, at *27.

Overpayment of Tax. A taxpayer makes an overpayment if he remits funds to the IRS in excess of the tax for which he or she is liable. Jones v. Liberty Glass Co., 332 U.S. 524, 531 (1947). The requesting spouse must establish that he or she (and not the non-requesting spouse) provided the funds for the overpayment, and that the payments were not made with the joint return and were not joint payments or payments that the non-requesting spouse made. See Rev. Proc. 2013- 34, § 4.04, 2013-43 I.R.B. 397, 403. Where the requesting spouse has not made or been the source of any overpayment, the request for a refund will likely be denied.

Insights: Collins did not demonstrate entitlement to a refund. Collins did not remit any tax payments to the IRS with respect to the understatement in issue. Thus, the issue based on innocent spouse relief was not available. Before any taxpayer may be allowed a refund or credit, there must be a determination that the taxpayer made an overpayment.