In the recent case of Turner v. United States, (N.D. Cal. 2019) a prisoner sought to obtain a refund of money for his wife using the remedy of habeas corpus. Mr. Turner’s effort to obtain the refund through this process failed but in his predictable failure a few points can be made about the process. The main point that jumped out from the case concerns the issue of injured spouse relief. In reading the case I did not get the impression that the judge was aware of injured spouse relief. This makes sense because the judge is a district court judge. It also did not appear that the DOJ Tax Division attorney mentioned it though any mention may have been made informally. In case we have any readers who are unaware of injured spouse relief, I thought I would briefly review the grounds for this relief since this is the time of year when such relief is most important. We have written about it before here and here.
Mr. Turner was sent to prison almost two decades ago as a result of a conviction for first degree murder. While in prison he apparently met and married Regina in 2017. She filed a return for that year claiming him as a dependent. The facts as presented in the opinion state that she did not file a joint return although on the facts that would have been the correct filing status and that would have made what happened next easier to understand.
When Mrs. Turner filed her 2017 return, she apparently claimed a large refund which Mr. Turner alleges that the IRS took to satisfy Mr. Turner’s outstanding federal tax liability. I would not expect someone in prison for murder for 20 years to have an outstanding federal tax liability. It is possible that he had another type of liability that comes within the offset provisions and it is also possible that he totally misconstrued the reason the IRS hung onto her refund. Aside from the puzzling aspect of someone in prison so long having a liability, there is the issue that this was not a joint return raising the question of what would have triggered the offset to his outstanding debt.
The court took very little time disposing of the case because habeas corpus relief does not extend to tax refunds. Because it’s so clear that relief could not be granted on the basis requested, I think the court did very little to flush out the correct facts and perhaps untangle the situation for a confused petitioner.
Still, the case can provide a basis for discussing the injured spouse provisions which often confuse taxpayers and occasionally confuse practitioners. Perhaps the best way to avoid injured spouse issues is to carefully vet any prospective marital partner to ascertain what debts the partner brings into the marriage. A partner coming into the marriage with tax debts, student loan debts, outstanding child support or any of the types of debts that trigger offset is a partner for whom the taxpayer must be very careful when filing the tax return. Filing a joint return with someone who owes a type of debt subject to offset means that any refund on the return will be taken and applied to the outstanding debt unless the parties affirmatively alert the IRS that it should not.
The injured spouse provisions often get confused with the innocent spouse provisions of IRC 6015. In an innocent spouse case a married couple has filed a joint return on which they owe more money either as a result of an additional assessment or an underpayment. One of the spouses (sometimes both) seek to limit their exposure to the liability for the reasons provided in IRC 6015. In contrast the injured spouse provisions arise when a married couple files a joint return on which they report a refund due to them. The IRS takes all or part of the refund to satisfy the outstanding debt of one of the spouses, the liable spouse. The non-liable spouse is injured because all or part of the refund results from their payment and the non-liable spouse seeks a return of the portion of the refund attributable to him or her. Unlike the innocent spouse provisions, the injured spouse provisions are a creature of administrative practice and not the statute.
If the refund on the joint return results wholly or partially because of the spouse who does not owe a debt to the government, the spouse who does not owe the debt should file a Form 8379 with the tax return. This means filing the return by paper and waiting a long period for the refund. The extra delay will be worth it if the form prevents the IRS from offsetting the refund of the non-liable spouse. Some taxpayers will not know about the Form 8379 or will not know that they spouse has an outstanding liability. So, the IRS will make the offset and send them a notice of what was done. For the non-liable spouse in this situation whose refund has been partially or wholly taken to satisfy the separate liability of their spouse, the possibility of the return of the money still exists. In this situation the injured spouse should file the Form 8379 after learning of the taking of the refund. The IRS will require the injured spouse to provide the portion of the refund attributable to that spouse. Assuming that the injured spouse can successfully prove to the IRS that all or part of the offset refund was generated by the party with no liability, the IRS will release the appropriate refund to the injured spouse and increase the debt owed by other spouse.
Because the process of requesting injured spouse relief is a bit cumbersome, some spouses take the tack that the safest path with a spouse who owes outstanding debts is a married filing separate return. Using the injured spouse provision, the non-liable spouse can obtain the benefit of the joint return rates while still getting back the refund resulting from their efforts. Of course, if the existence of the other spouse’s debt has caused them to lose confidence in their spouse, opting for a married filing separate return may be best for other reasons.
It’s not clear to me if Ms. Turner has the ability to seek a return of her refund based on the injured spouse provisions but based on the arguments made by her husband she should at least look into the injured spouse provisions to determine if they would form the basis for relief.