Filing of incorrect form is considered a valid informal refund claim: the Ninth Circuit reverses the Tax Court and finds that the IRS was sufficiently apprised of an innocent spouse claim.

Author:Reichert, Charles J.

The Ninth Circuit, reversing and remanding the case to the Tax Court, held that a taxpayer was entitled to a refund of overpayments that the IRS had applied to a tax debt from a joint return she had previously filed with her ex-husband. According to the appellate court, she had made a valid informal claim for innocent spouse relief when she incorrectly filed her claim for relief on a form for requesting injured spouse relief (Form 8379, Injured Spouse Allocation), and therefore she had made a timely claim to have her overpayments refunded to her.

Facts: In 1996, Teresa Palomares filed a joint return with her husband. After separating from her husband in 2005, she filed tax returns for 2005 through 2008 using head-of-household status. Those returns all showed refunds due, but the IRS applied those refunds to an unpaid liability for the 1996 joint return. On July 1, 2008, Palomares, with free legal aid assistance, incorrectly filed Form 8379, Injured Spouse Allocation, requesting a refund of her 2007 overpayment that the IRS had applied to the 1996 joint tax liability. On Sept. 24,2008, the IRS sent her a letter stating that she did not qualify for injured spouse relief; it included Form 8857, Request for Innocent Spouse Relief, indicating that she may have intended to file that form instead.

Due to her limited fluency in English and various personal problems including abuse and threats from her husband, she did not submit Form 8857 until August 2010, when she requested refunds for 2006, 2007, and 2008. The IRS denied her request for 2006 and 2007 as untimely. She petitioned the Tax Court for relief (Palomares, T.C. Memo. 2014-243), which the court denied. Palomares subsequently appealed the decision to the Ninth Circuit.

Issues: When taxpayers file a joint income tax return, both spouses are responsible for the entire tax liability. If one spouse believes that only his or her spouse or former spouse should be responsible for all or part of the tax, he or she can request innocent spouse relief by filing Form 8857. To receive a refund based on the request, innocent spouses must file the form within the limitation period for refunds, i.e., three years from the due date of the original return (including extensions) or two years from the date that the tax was paid, whichever is later.

Another type of relief, injured spouse relief, is available for a married taxpayer filing a joint tax return when all or part of his or her portion of a refund on...

To continue reading