CCA advised that a joint Form 4868 remittance was properly allocated between spouses

Plain-English summary

The Office of Chief Counsel advised that a remittance submitted with a joint Form 4868 should be treated as an estimated tax payment and allocated between the spouses under Treas. Reg. § 1.6654-2(e)(5)(ii)(B) and the IRM. The advice rejected the position that the remittance was an overpayment belonging entirely to one spouse, distinguishing the cited cases because the remittance accompanied a Form 4868. The advice concluded that the allocation between the spouses’ accounts was proper and that the taxpayer was not entitled to a refund of the amount allocated to the spouse.

Ruling snapshot

• Question: Should a remittance filed with a joint Form 4868 be allocated between spouses as an estimated tax payment or returned to the spouse who supplied the funds?
• Outcome: Advice given
• Key authorities: IRC § 6407; Treas. Reg. § 1.6654-2(e)(5)(ii)(B); IRM 21.6.3.4.2.3.3; IRC § 6110(k)(3) not-precedent notice

Full text (IRS public release)

ID: CCA_2010032314234453 Number: 201035023
Release Date: 9/3/2010
Office: -----------
UILC: 6654.01-03

From: ---------------------
Sent: Tuesday, March 23, 2010 2:23:58 PM
To: ---------------------------------------
Cc:
Subject: [-----------------]

    At the request of Lead Case Advocate --------------, the Associate Area Counsel (---------), -----------
    -----------, provided an advisory opinion as to the proper allocation of a remittance which
    accompanied an Application for Automatic Extension of Time to File U.S. Individual Income Tax
    Return (Form 4868) submitted by the above taxpayer and his wife in regard to their ------- income
    tax liability. That Form contained the names of both the taxpayer and his wife, as well as their
    respective Social Security Numbers. The Internal Revenue Service treated the remittance which
    accompanied the Form 4868 as a payment of estimated tax, and allocated it between the accounts
    of the taxpayer and his wife in accordance with Treas. Reg. Section 1.6654-
    2(e)(5)(ii)(B). From ------- through -------, the taxpayer and his wife filed separate income tax
    returns, with a filing status of "married, filling separately." They are now apparently involved in a
    divorce proceeding.

    Upon learning of the above-described allocation of funds, the taxpayer's authorized
    representative (a CPA) informed Service personnel that the funds in question were entirely those
    of the taxpayer, and that the allocation of a portion of the remittance which accompanied the
    Form 4868 to the taxpayer's spouse' account was incorrect. The taxpayer's representative,
    therefore, demanded that those funds which had been posted to the taxpayer's spouse' account
    be transferred to the taxpayer's account. That action was thereafter taken by Service personnel.
    Upon learning of that transfer, the taxpayer's spouse demanded that the funds be returned to her
    account; and they were. The taxpayer then remitted an amount equal to the funds which had
    been transferred to his wife's account, and now seeks a refund of that amount.

    In her advisory opinion, the Associate Area Counsel concluded that the funds which accompanied
    the subject Form 4868 were properly treated as a payment of estimated tax that should be
    allocated pursuant to the provisions of Treas. Reg. Section 1.6654-2(e)(5)(ii)(B) and IRM
    21.6.3.4.2.3.3. In the event no agreement can be reached between married taxpayers as to the
    proper allocation of a payment made with a Form 4868, the IRM direct that the payment is to be
    allocated between the married taxpayers' accounts based on a ratio which takes into
    consideration each separate spouse' individual income tax liability. Because of the pending
    divorce, the taxpayer and his spouse could not agree on a proper allocation of the funds in
    question; and the Associate Area Counsel concluded that the allocation of the subject payment
    between the accounts of the taxpayer and his spouse was proper and supported by case law,
    regulations and the IRM. This is consistent with Treas. Reg. Section 1.6654-2(e)(5)(ii)(B).

    The taxpayer's CPA does not agree with the opinion of the Associate Area Counsel (---------) In a
    letter to your office, the CPA argued that because the funds in question were the sole property of
    the taxpayer, the allocation that took place was wrong, and that the case of United States v.
    MacPhail, 2003-2 USTC P 50 (S.D. Ohio 2003) requires that the portion of the funds allocated to
    the taxpayer's spouse be returned to the taxpayer. The CPA's letter also indicated that the case
    of Hathaway v. United States, 71 AFTR 2d 1786 (W.D. Wash. 1993), also supported his position.
    Upon receipt of the CPA's letter, you sought the assistance of this office.

The Associate Area Counsel's advisory opinion did not address either MacPhail or Hathaway.
For that reason, we suggested that this matter should be coordinated with the Office of the
Associate Chief Counsel (------). That coordination did take place, and it has been determined that the
position taken by the Associate Area Counsel in her initial advisory opinion was correct.
Accordingly, we suggest that you respond to the taxpayer's CPA as follows.

The proper method for apportioning the funds in dispute depends on whether the remittance
submitted with the Form 4868 is to be treated as a joint estimated tax payment, or an
overpayment. In both MacPhail and Hathaway, the District Courts founds the funds in question to
be "overpayments," and determined that the proper allocation was based on which of the married
taxpayers in those cases had been the owner/source of the funds. Hathaway is clearly
distinguishable from the situation at hand, however, because the funds there in question did not
involve a remittance with a Form 4868. Moreover, what the CPA's letter fails to mention is that
while the District Court's opinion in MacPhail was affirmed on appeal, in doing so, the United
States Court of Appeals stated "[w]hile we agree with the district judge's conclusion, we do not
agree with his reasoning." United States v. MacPhail, 149 Fed. Apxx. 449, 452 (6th Cir. 2005).

As the appellate court noted in MacPhail, "under [section 6407 of the Internal Revenue Code], an
overpayment credit does not exist until the IRS authorizes the refund or credit. The simple act of
sending in [a] check…does not call into existence a tax overpayment." 149 Fed. Appx. At 453.
This supports the position taken by the Associate Area Counsel in her advisory opinion that the
funds here in question (i.e., those remitted with the Form 4868) were properly treated as a
payment of estimated tax -as opposed to an "overpayment" - to be allocated between the
taxpayer and his spouse pursuant to the relevant provisions of the estimated tax regulations and
the IRM. Further support for that conclusion is found in Gabelman v. Commissioner, 86 F.3d 609
(6th Cir. 1996), another opinion issued by the United States Court of Appeals for the Sixth
Circuit. In Gabelman, the Court of Appeals held that "remittances submitted with Form 4868
extension requests are payments [of tax] as a matter of law." 86 F.3d at 10 (emphasis added).
Accordingly, the allocation of the payment which accompanied the Form 4868 was correct.

I am closing our file. If we may be of further assistance, do not hesitate to contact us.

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