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Taxpayer Made an Informal Refund Claim for When She Filed Wrong Form Seeking Innocent Spouse Relief

(Parker Tax Publishing June 2017)

The Ninth Circuit reversed the Tax Court and held that a taxpayer, who was seeking a tax refund as a result of an innocent spouse relief claim, made an informal claim for the refund when she filed Form 8379, Injured Spouse Allocation, and thus the statute of limitations on filing a refund claim was tolled. The Form 8379 fairly apprised the IRS that the taxpayer was seeking innocent-spouse relief and, based on the evidence presented to the Tax Court, the equities clearly weighed in favor of granting relief. Palomares v. Comm'r, 2017 PTC 264 (9th Cir. 2017).

In July of 2008, Theresa Palomares sought help in applying for innocent spouse relief under Code Sec. 6015(f) stemming from a joint return she and her then-husband had filed for 1996. In particular, Palomares sought refunds of various credits the IRS had applied against the 1996 joint liability from her 2006 and 2007 tax returns which she had filed individually as a head of household. A volunteer attorney helped Palomares make her initial refund claim using Form 8379, Injured Spouse Allocation. However, that was the wrong form to file for innocent spouse relief. Form 8379 is designed for allocation of tax liability on a joint return by an "injured" spouse. By the time Palomares corrected this mistake years later by filing a Form 8857, Request for Innocent Spouse Relief, the two-year statute of limitations to request refunds for her 2006 and 2007 overpayments had expired and the IRS denied relief.

In addition to having a limited ability to communicate in English, Palomares experienced numerous personal problems from 2008 through 2010. In 2008, her husband physically abused her and threatened her with a gun. Palomares sought assistance from Northwest Justice, a legal aid program, in connection with these events. From 2008 to 2010, Northwest Justice also assisted Palomares with a child custody battle, which lasted for two years, and her divorce proceeding. During the same period, Palomares's father, who lived in Mexico, was extremely ill, and her wages were garnished because of her husband's outstanding business obligations. These events and other stresses in Palomares's life caused her to become depressed and she was actively treated and took medication for her depression until sometime in 2010. On January 19, 2010, Palomares's marriage to husband was dissolved by decree of the Superior Court of Washington State.

Before the Tax Court, Palomares contested the IRS's rejection of her refund claim. She argued that her submission of the Form 8379 during 2008 was an informal claim, was made within the two-year statute of limitations period, contained pertinent information, and tolled the limitations period until she filed the Form 8857 in 2010. The IRS disagreed, conceding that the informal claim doctrine could apply to a technically deficient request for relief but contending that Palomares's Form 8379 did not constitute an "informal claim."

The informal claim doctrine is an equitable doctrine established by federal courts. It permits an informal claim for refund to suffice if it provides the government with sufficient notice that a taxpayer is making a claim. A timely informal claim that meets the judicial standard can be subsequently amended and keep open an otherwise expiring statute of limitation on making a claim. The sufficiency or adequacy of an informal refund claim is largely a question of fact.

The Tax Court held that Palomares's Form 8379 did not qualify as an informal claim for refund and that the period to request a refund had expired by the time she filed her Form 8857 request for innocent spouse relief. Palomares appealed to the Ninth Circuit.

The Ninth Circuit reversed the Tax Court and held that Palomares's Form 8379 fairly apprised the IRS that she was seeking innocent-spouse relief from her 1996 liability for two reasons. First, the court noted, the IRS had been crediting Palomares's tax overpayments - which were associated with returns she filed separately - to liability on the 1996 return that she filed jointly. The only form of relief that made any sense under these circumstances, the court said, was innocent-spouse relief. Second, in responding to Palomares's Form 8379, the IRS informed Palomares that to request innocent-spouse relief, she should file a Form 8857, not a Form 8379.

According to the Ninth Circuit, based on the evidence presented to the Tax Court, the equities clearly weighed in favor of granting Palomares relief under the informal claim doctrine. The court noted that Palomares spoke little to no English during the relevant period and was the subject of domestic abuse. She was not responsible for the deficient 1996 payment and her improper filing of the Form 8379 was the result of incorrect advice from a volunteer attorney. Because the Form 8379 sufficiently gave notice to the IRS that Palomares was seeking a refund on the ground that she was an innocent spouse, and because the equities clearly weighed in her favor, the Ninth Circuit said that the Tax Court should have granted Palomares relief by letting her Form 8379 toll the limitations period until the Form 8857 was filed.

For a discussion of innocent spouse relief, see Parker Tax ¶260,560. For a discussion of injured spouse relief, see Parker Tax ¶260,570.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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