Close, but No Cigar: For Innocent Spouse Relief, a Form 8379 Doesn't Quite Cut It

Palomoares v. Comm’r, T.C. Memo. 2014-243, 2014 WL 6778542 (2014)

(a) Facts: A husband and wife lived in Washington State. The wife was not fluent in English and mostly spoke Spanish.

The parties separated in 2005, and the wife filed sole tax returns for 2006 and 2007, claiming refunds. The IRS rejected the wife’s claims, as it seized the amount of her refunds to satisfy unpaid tax liability from the parties’ joint 1996 tax return.

When the wife did not receive the refunds, a legal clinic helped her to file Form 8379, Injured Spousal Allocation, which is aimed at allocation of liability on a joint tax return by an injured spouse. The IRS rejected the form, informing the wife by letter that she needed to file Form 8857 to seek innocent spouse relief. The wife did not do this, but she barely spoke English and could not understand the letter.

Throughout this period, the wife was abused physically by the husband, her father in Mexico was seriously ill, and her wages were garnished because of the husband’s business activities. These problems caused the wife to suffer from depression, which was treated with medication.

The parties were divorced in 2010. The wife’s divorce attorney learned that the wife’s 2006 and 2007 refunds had been applied to the 1996 liability. With her attorney’s help, she finally filed Form 8857, seeking innocent spouse relief.

The IRS initially indicated an intent to deny the wife’s claim under its former policy regarding the two-year statute of limitations. After the IRS’s policy changed, it did not do this. Instead, it granted innocent spouse relief, but only with regard to payments made within two years of the filing of Form 8857. The wife appealed to the Tax Court, arguing that she should obtain relief retroactive to her filing of Form 8379.

(b) Issue: Was the wife entitled to innocent spouse relief retroactive to her filing of Form 8379?

(c) Answer to Issue: No.

(d) Summary of Rationale: To obtain innocent spouse relief, a spouse “must file Form 8857, “Request for Innocent Spouse Relief” . . . [or] submit a written statement containing the same information required on Form 8857, which is signed under penalties of ” Treas. Reg. § 1.6015-5(a). The wife argued that her Form 8379 was a written statement, signed under penalty of perjury, containing the same information as Form 8857.

But the court disagreed. “Petitioner’s Form 8379 did not convey sufficient information to notify Respondent that she was seeking relief from joint and several liability for the 1996 tax year and a refund of amounts that had been applied against the liability for that year.” Palomoares, 2014 WL 6778542, at *5. “While we are sympathetic to petitioner’s situation and the hardships she faced in her personal life, finding that her Form 8379 was an informal request for refund based on relief from joint and several liability would place an unfair burden on the Government.” Id. at *6.

Obvious Lesson: If you want innocent spouse relief, file Form 8857. Don’t file Form 8379.

Comments:

Palomoares is a textbook example of the sort of fact situation that convinced Congress to effectively force the IRS to change its policy on the statute of limitations. The wife was physically abused, unable to read English, and therefore unable to respond effectively to tax concerns.

The wife’s improper filing of Form 8379, however, was not a result of her abuse or lack of knowledge of English. It resulted, unfortunately, from bad advice given to her by a legal clinic. The language barrier may have played a role, and fear of abuse may have limited the wife’s ability get facts needed by the clinic. If the clinic was not capable of giving the wife accurate tax advice, it should have referred her to someone who could.

The court felt that its hands were tied, as the Form 8379 filed by the wife did not give the IRS sufficient information. This is somewhat debatable, as the IRS actually responded by telling the wife she should file Form 8857—a response that suggests that the IRS probably understood the claim that the wife was trying to make. Abused spouses and persons without good knowledge of English continue to face difficulties in dealing with the IRS.