Student Edition p. 151 and Practitioner edition at the end of the carryover section and immediately before 2. Constructive Overpayments, add the following paragraph (remember that the footnotes do not apply to the student edition):
Finally, as noted, the IRS may credit refunds otherwise due for tax debts and for nontax debts other federal, state agencies and even child-support payments certified by the state. This creates a problem only one spouse owes the debt to which a refund on a joint return is credited. In that case, the spouse who is not liable may have a separate interest in the refund on the joint return. That spouse is called the injured spouse because that spouse’s asset is used to pay a debt of the liable spouse. n769.1 The IRS has procedures, called injured spouse relief, that permits the injured spouse to obtain the refund. n769.2 This relief to obtain the injured spouse’s share of overpayments credit to the liable spouse’s debt is sometimes confused with innocent spouse relief (discussed below beginning at p. 472 of the Student edition and p. 682 of Practitioner edition). The IRM succinctly states the different as follows: “Innocent spouse status relieves a spouse of the responsibility for paying taxes that may then be collected from the other spouse. Injured spouse status involves obtaining a refund of a spouse's interest in an overpayment that has been offset under IRC 6402.” n769.3 The injured spouse relief is based on general state law rights rather than being required by a particular Code section.
n769.1 See generally IRM 25.18.5 Injured Spouse. IRM 184.108.40.206 (03-04-2011), Background - IRC 6402 Offsets, subpar. 3 which is captioned “How Offset Issues Arise,” noting in relevant part:
Offset issues arise where spouses file joint returns and only one spouse owes a IRC 6402 debt. In this circumstance, an allocation must be made to determine the liable spouse's interest in the overpayment, the amount that can be offset for the liable spouse's debt, and the amount to be refunded to the nonliable spouse. Rev. Rul. 80-7, 1980-1 C.B. 296, amplified by Rev. Rul. 87-52, 1987-1 C.B. 347. Due to different property rights in income tax and withholding and other credits, there is a difference in the allocation process for community property states as opposed to the other states. Rev. Rul. 85-70, 1985-1 C.B. 361.
In subsequent sections, the IRM provides the methods for allocating the amount of the refund to the injured spouse. Having spent most of my career practicing in Houston, Texas, I was particularly interested to see a special IRM provision devoted allocations in Texas. IRM 220.127.116.11 (03-04-2011), Injured Spouse Claims Involving Federal Tax Offsets in Texas. Texas is just different.
n769.2 The relief is requested by Form 8379, titled Injured Spouse Allocation, which can be filed (i) with the return if the taxpayers know of the § 6502 creditable debt of the liable spouse and (ii) after notice of the credit in order to obtain the benefit for the injured spouse. For more on the relief, see Keith Fogg, Special Statute of Limitations for Injured Spouse Relief (Procedurally Taxing Blog 9/2/16), discussing the TIGTA report titled Injured Spouse Cases Were Not Always Timely Resolved, Resulting in the Unnecessary Payment of Interest (Ref. No. 2016-40-042 5/19/16). One key point that Keith Fogg makes is that the statute of limitations for claiming injured spouse relief for credits to the liable spouse’s federal tax debts is three years whereas the statute of limitations for such relief for nontax debts is six years. Keith also notes that one solution where a potential injured spouse knows of the creditable debt in advance is for the potential injured spouse to not file a joint return. But, Keith notes, that might not be a satisfactory solution where the filing of a joint return will reduce the aggregate net tax liability.
n769.3 IRM 18.104.22.168 (03-04-2011), Background - IRC 6402 Offsets, subpar. 3. The IRM also notes that some spouses entitled or potentially entitled to injured spouse relief filed mistakenly for innocent spouse relief. Where that occurs, the IRS is instructed to notify the spouse of the difference via a specific form letter and provide a copy of Form 8379, titled Injured Spouse Allocation.