CCA 1204009: Outline addresses injured-spouse claims in community-property states

Plain-English summary

Chief Counsel provided an outline concerning injured-spouse claims under community-property laws. It explains that an injured spouse may seek allocation of a joint-return overpayment when the other spouse's liability would otherwise cause an offset. The outline identifies the required elements, describes how the IRS calculates the injured spouse's share, and summarizes how state community-property law and federal tax law interact. It also notes Form 8379, Injured Spouse Allocation.

Ruling snapshot

• Question: How should injured-spouse claims and offsets be analyzed when community-property laws apply?
• Outcome: advice given
• Key authorities: IRC § 6402(c) or (d); Form 8379; IRC § 6110(k)(3).

Full text (IRS public release)

ID: CCA-324111-11 Number: 201204009
Release Date: 1/27/2012
Office: ----------------------------
UILC: 6402.02-00

From: --------------------
Sent: Thursday, March 24, 2011 3:12 PM
To: ---------------------------------------
Cc: -----------------------------
Subject: FW: Injured Spouse Claims Under Community Property Outline

Attached below is an outline in regard to the above topic. As I mentioned, the concept of an "injured spouse" on a nuts and bolts level relates to an offset under Code section 6402(c) or (d).

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Attachment 1:

                 Injured Spouse Claims Under Community Property Laws

1. What is an Injured Spouse?

     1.         Elements:
   
                a.         Joint return
   
                b.         Overpayment
   
                c.         Liable spouse
   
                d.         Injured spouse files form 8379 – Injured Spouse Allocation
   

2. Other Points

     1.         Not “innocent spouse”
   
     2.         Equitable facts not required
   
     3.         Injured spouse’s interest in an overpayment
   

   4. Injured spouse’s interest in a joint overpayment will not be offset if
      the above elements are met

3. Determining the Injured Spouse’s Interest in the Overpayment

   1. IRS determines the injured spouse’s interest in the overpayment.

   2. Steps to determine the injured spouse’s interest in the overpayment

   Injured Spouse's Separate Joint Tax Injured Spouse’s
   Tax Liability X Liability Shown = Share of Joint Tax
   Total of Spouses' on Return Liability
   Separate Tax Liabilities

4. Offset

5. Community Property Laws and Injured Spouse Claims

   1. State law governs the injured spouse’s interest; federal law dictates the
      tax consequences.

   2. Allocate items based on community property laws.

   3. Injured Spouse’s contribution towards the liability based on community
      property laws.

6. Necessary Steps to Determine Injured Spouse’s Share in CP Jurisdictions

   1. Identify the underlying source of the overpayment.

   2. Characterize the underlying source of the overpayment as separate or
      community property.

   3. Offset the liable spouse’s share of overpayment from a community
      property source against the liable spouse’s separate liability.

        a. Allocate items
      
        b. If the debt to which the offset was applied is not a federal tax debt,
           refund the injured spouse their share of the overpayment. If a federal
           tax debt, then move to next step.
      

   4. Consult state law to determine if creditors may reach community property
      to satisfy a spouse’s separate debts.

   5. Consult state law to determine if creditors may reach any portion of an
      overpayment from a separate property source of the liable spouse or non-
      liable spouse.

7. Other Points

   1. There is a presumption that items acquired after marriage are community
      property.

   2. Marital agreement may change character of property normally considered
      community property.

   3. Certain items must be separately allocated by operation of federal law
      (community property laws disregarded).