Joint estimated tax payments follow the spouses' agreed allocation

Plain-English summary

Chief Counsel advised how to allocate payments associated with a joint account when spouses later file separate returns. An overpayment elected as a credit becomes an estimated tax payment for the next year, and a payment submitted with Form 4868 follows the same general treatment. A payment made through a separate estimated tax declaration belongs to the spouse who made it, but spouses may allocate a joint estimated tax payment in any consistent manner they agree upon. If they cannot agree, the payment is divided in proportion to the tax liabilities shown on their separate returns. The fact that the money came from one spouse's separate bank account does not by itself change the character of a payment made for the joint account, although surrounding circumstances can show that a nominally joint payment was not truly joint. Because one spouse had not yet filed, the IRS could not determine the proportionate shares.

Ruling snapshot

• Question: How should a credit-elect overpayment and a Form 4868 payment for a joint account be allocated when the spouses file separately?
• Outcome: advice given
• Key authorities: IRC § 6402(b); Treas. Reg. §§ 1.6081-4, 1.6654-2(e)(5), and 301.6402-3(a)(5)

Full text (IRS public release)

ID: CCA_2017062113514626
UILC: 6402.01-02

Number: 201727007
Release Date: 7/7/2017
From:
Sent: Wednesday, June 21, 2017 1:51:46 PM
To:
Cc:
Bcc:
Subject: FW: 6402 question

Hi . We agree with the technical advisor’s statement that since the $----------
overpayment for ------- was designated as a credit elect, it is then considered an
estimated tax payment for the next year. IRC 6402(b) and Treas. Reg. 301.6402-
3(a)(5).

As to the $---------payment made with the Form 4868 in connection with the extension of
time to file provided by Treas. Reg. 1.6081-4, the application of that payment follows
the same procedure as that for estimated tax payments. See Gabelman v.
Commissioner, 86 F.3d 609, 612 (6th Cir. 1996) (“Furthermore, the lump sum remittance
of estimated taxes is analogous to the withholding of taxes and the payment of
estimated taxes made in installments throughout the year. Both of the latter types of
remittances have been characterized as payments.”) See also, Action on Decision CC-
1997-006 (May 5, 1997) Re: Robert B. Risman and Eleanor Risman
v. Commissioner, 1997 WL 218204, agreeing with Gabelman on this point.

Estimated tax payments made in a separate declaration are the separate property of the
spouse making the declaration. Janus v. United States, 557 F.2d 1268, 1269–70 ( 9th
Cir. 1977); Morris v. Commissioner, T.C. Memo. 1966-245 (Each spouse filed individual
declarations of estimated tax and neither was entitled to any portion of the others
payments). For those estimated tax payments made in a joint declaration of estimated
tax for a year in which the taxpayers wind up filing separate returns, the taxpayers may
allocate the payment in any consistent manner that they may agree upon. Treas. Reg.
1.6654-2(e)(5)(ii)(A). If the taxpayers cannot agree, the payment “shall be allocated
between them” in proportion to the tax liability reported on the separate tax return for the
current year. Treas. Reg. 1.6654-2(e)(5)(ii)(B). This estimated tax payment allocation
rule had been set out in Rev. Rul. 76-140 under obsolete Treas. Reg. 1.6015(b)-1(b).
That ruling addressed taxpayers who had had made a credit elect for an overpayment
on a joint return, but divorced in that subsequent year and filed separate returns dividing
the overpayment; the separate returns were determined to reflect an agreement and in
the absence of evidence to the contrary, the allocation method in Treas.
Reg. 1.6015(b)-1(b) was not applicable. The instructions for Form 4868 reflect this
part of the estimated tax payment procedure: “If you and your spouse jointly file Form
4868 but later file separate returns for -------, you can enter the total amount paid with
Form 4868 on either of your separate returns. Or you and your spouse can divide the
payment in any agreed amounts.” Taxpayers are directed not to make a joint payment
of estimated tax if they are separated under a decree of divorce or of separate
maintenance. Treas. Reg. 1.6654-2(e)(5)(i).

As the credit elect came from a joint return, then as estimated payment for ---------- the
$---------amount is considered on its face to be a payment for a joint account. As to the
$---------payment made with the Form 4868, the technical advisor indicates that the
documentation indicates the payment was for the joint account, and if so, we agree with
the technical advisor’s treatment.

TAS has verified that the funds for the payments came from TPW’s separate account,
but under the regulations referenced above, the source of the payment is not relevant to
the allocation of an estimated tax payment made in a joint declaration of estimated
tax. Circumstances, however, may show that payment submitted with a joint estimated
tax voucher is not in fact a joint payment. See, e.g., United States v. Bell, 818 F. Supp.
444 (D. Mass. 1993) (the “joint” payment was made under a threat of violence).

As the TPH has not filed for -------, the Service cannot yet determine the taxpayers’
proportionate shares. Under IRM 21.6.3.4.2.3.3 (10-01-2012) ES Joint Allocation, it
seems documentation of contact with TPH is needed. (“IF Taxpayer has been
previously advised the payments must be allocated; AND Both taxpayers cannot agree
on an allocation of the joint payments; THEN Advise taxpayer to submit a computation
indicating the allocation of the ES credit in proportion to each spouse's separate
tax.”) TPW may wind up having all of the payments applied to her ------- account; but if
not, a disallowance letter would be issued.

Please contact me if you have any questions.