Ninth Circuit Reverses Tax Court on Informal Claim Determination 

We wrote recently about the Tax Court’s decision in Palomares v. Commissioner, TCM 2014-243 in which the taxpayer incorrectly filed the injured spouse form instead of the innocent spouse form. We have also provided a link to the oral argument in the 9^th Circuit by a student from the Gonzaga Law School Tax Clinic. By the time Ms. Palomares filed the corrected form, the time for claiming certain refunds had expired. The Tax Court declined to treat the filing of the injured spouse form as an informal claim for refund that would have provided her the opportunity to still receive the otherwise late refund claims.

Today, the 9^th Circuit in an opinion found here reversed the Tax Court holding that the filing of the injured spouse form constituted an informal claim. Citing to a leading tax procedure treatise, the Court described the informal claim doctrine:

The informal claim doctrine permits a taxpayer to avoid the limitations of Section 6511(a) if the taxpayer filed a written refund request that was “sufficient to apprise the Service that a refund is being claimed,” and “specifies the tax and the year or years for which the refund is being sought sufficiently so that the Service can investigate the claim.” Michael I. Saltzman, IRS Prac. & Proc. ¶ 11.08(2); see United States v. Kales, 314 U.S. 186, 194 (1941).

After stating the principle of the informal claim doctrine, the Court went on to hold:

We conclude that Palomares’s Form 8379 fairly apprised the Commissioner that Palomares was seeking innocent spouse relief from her 1996 liability for two reasons. First, the Commissioner 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 was innocent-spouse relief. Second, in responding to Palomares’s Form 8379, the Commissioner informed Palomares that to request innocent-spouse relief, she should file a Form 8857, not a Form 8379.

The Court pointed out that the equities were clearly in favor of granting her the refund. She was the subject of domestic abuse – something that impacted her ability to timely and correctly file her claim. English was not her first language and not a language with which she was comfortable. She was not liable for the 1996 liability. She received wrong advice from a volunteer attorney and the incorrect form she filed gave the IRS notice of her real problem. In fact, the mixing up of the injured spouse and innocent spouse forms occurs with enough frequency that the IRS addresses the problem in its instructions.

Here’s from the instructions on the current 8379:

Innocent Spouse Relief

Do not file Form 8379 if you are claiming innocent spouse relief. Instead, file Form 8857. Generally, both spouses are responsible for paying the full amount of tax, interest, and penalties due on your joint return. However, if you qualify for innocent spouse relief, you may be relieved of part or all of the joint liability. You may qualify for relief from the joint tax liability if any of the following apply.

There is an understatement of tax because your spouse omitted income or claimed false deductions or credits, and you did not know or have reason to know of the understatement.

There is an understatement of tax and you are divorced, separated, or no longer living with your spouse.

Given all the facts and circumstances, it would not be fair to hold you liable for the tax.

See Pub. 971 for more details.

The Ninth Circuit corrected an injustice. I do not believe that anyone at the IRS or the Tax Court wanted the outcome that Ms. Palomares received administratively or from the Tax Court. By applying the informal claim doctrine in these circumstances in a manner that allows Ms. Palomares to receive the refund she deserved the 9^th Circuit has corrected a mistake the others did not feel empowered to correct. I wish the 9^th Circuit had made this a precedential opinion. I do not understand its decision in that regard. It could have made a more sweeping statement about the confusion that impacts many people in Ms. Palomares circumstances regarding the distinction between injured spouse and innocent spouse. A broader statement about that confusion (which obviously occurred even with a member of the bar volunteering to assist) and the informal claim doctrine might have made it easier for the IRS to grant relief to others similarly situated who may now have to pursue the same hand to hand combat in litigation that Ms. Palomares faced.

Fortunately for her she found the Gonzaga clinic. Kudos to the clinic for its successful representation of her in this case.  That clinic is led by Jennifer Gellner.  The following students, spanning a period of five years, worked with her on this case:

2012  Amber Rush    Innocent Spouse Appeals hearing

2013   Derek Johnson   Tax Court Petition

2013  Natalie Lane & Kate Sender   Tax Court Trial

2014  Derek Johnson (again)  Tax Court brief

2015  Davis Mills   Ninth Circuit Brief and Mediation

2017 Meagan Nibarger   Ninth Circuit Oral Argument

Additional research and support:

2014  Tyler Smith

2015 Aaron Jones, James Schutt, Stevie Swift

2017  Dylan Broyles