Time Limits for Filing a Claim for Refund with IRS

              The federal tax code provides numerous statutes of limitations. These include how long the IRS can question the taxpayer about a filed tax return. This could be three years, six years or forever depending upon the circumstances. There is also a collection statute that limits IRS ability to collect taxes to generally 10 years with appropriate extensions depending upon the tax filing activity of any particular taxpayer. Practitioners and taxpayers alike realize too late that there is also a statute of limitations to claim a refund of taxes erroneously paid. Generally that statute provides that such a refund claim must be filed within two years of payment or three years from the time a tax return was filed whichever expires later. Claims filed after those dates will result in the IRS rejecting any refund claim. When taxpayers or practitioners find themselves in that situation it should be remembered that over the years case law has developed a theory of the “informal” claim. What that amounts to is has the taxpayer properly noticed the IRS of his request for a return of taxes he has paid. While not taking the form of a formal claim like Form 843 or 1040X this may be no more than a letter to the IRS requesting such a refund. Lawyers should never rely on this fuzzy type of refund claim on which to base their case unless there is no other alternative. In a recent IRS Chief Counsel Advice 201540012, the IRS determined that a corporation which merely expressed its intent to file a formal claim in the future did not amount to sufficient notice to the IRS of a refund claim. Therefore the claim was denied and any tax unable to be refunded. A hard lesson to learn.

The Not So Innocent Spouse

              Matrimonial lawyers often are required to deal with tax problems. Certainly the New Jersey case of Sheridan  has made a minefield of litigation in this area. When confronted with difficult tax revelations on filed joint tax returns the concept of the innocent spouse is often bandied about. While the law has existed for many years current code section is section 6015. This section provides three specific areas where relief may be sought. In subsection (b) known as the “traditional” innocent spouse section what the requesting spouse knew or should have known as well as benefit derived become difficult issues. In subsection (c) and election exists to in essence provide an opportunity for the electing spouse who is divorced or separated to get out of joint and several liability from a filed joint tax return. This section permits income deductions credits and losses to be credited to the electing spouse separately. Actual knowledge of problems with the joint tax return if demonstrated by IRS can deny relief here. An amended tax return can be attached with the election form requesting (c) treatment. Lastly, subsection (f) provides for equitable relief based on all the facts and circumstances. Taxpayers seeking to take advantage of the innocent spouse rules have two years to file Form 8857 after collection action has begun against them. That form is seven pages and must be cautiously approached both as to content and likely consequences to the electing spouse. The form also warns that the non-electing spouse will be contacted. The easiest way to avoid the problem is to NOT file a joint tax return if the relationship is headed to the rocks. No joint tax return; no joint tax liability.