The opinion of the court was delivered by: DITTER
The question in this case is whether an overpayment on a joint income tax return, all the income having been produced by the husband's business, must be used to reduce his subsequent liability for underpayment of certain employment taxes. The matter comes before the court on cross-motions for summary judgment. I conclude that the motion of the government must be granted.
The parties have stipulated to the facts giving rise to this suit. Plaintiffs Norman and Frances Rosen, husband and wife, filed timely joint income tax returns
for the years 1968 through 1971. All income on those returns was attributable to Mr. Rosen, a retail clothier, who traded as Nor-Len Company, and all losses on the 1971 return resulted from the same business. In April, 1972, plaintiffs filed with the Internal Revenue Service (the Service) Form 1045, an Application for Tentative Refund from Carryback of Net Operating Loss or Unused Investment Credit. On the basis of a net operating loss of $36,040. for 1971, plaintiffs claimed income tax reductions for 1968 and 1969 totalling $4,863. The Service allowed the claimed net operating loss, but applied the resulting overpayments for 1968 and 1969 to Nor-Len's 1971 liabilities for unemployment and social security taxes and for taxes withheld by Nor-Len from its employees but not remitted to the Service.
Mr. Rosen admittedly was personally liable for these sums. Thereafter, Frances Rosen filed a timely Claim for Refund, which was disallowed by the Service. This suit followed. The only portion now pursued is that of Mrs. Rosen for one-half the 1968 and 1969 overpayments, it having been conceded the other one-half was properly applied by the Service to Mr. Rosen's tax liability.
Spouses filing a joint return have separate interests in any overpayment, the interest of each depending on his or her income, i.e., an overpayment is apportionable to a spouse to the extent that he or she contributed to the overpaid tax. See Maragon v. United States, 139 Ct. Cl. 544, 153 F. Supp. 365 (1957).
Moreover, the Tax Court repeatedly has held that the filing of a joint return does not have the effect of converting the income of one spouse into the income of the other. See, e.g., Robert A. Coerver, 36 T.C. 252 (1961), aff'd. per curiam, 297 F.2d 837 (3d Cir. 1962); Marie A. Dolan, 44 T.C. 420 (1965). Conversely, however, 26 U.S.C. § 6013(d)(3), note 1 supra, has been construed to render a wife responsible for the tax liability of her husband if they have filed a joint return, even though she neither incurred nor generated the income giving rise to the tax obligation. See Sylk v. United States, 331 F. Supp. 661, 663-64 (E.D. Pa. 1971); United States v. Olgeirson, 284 F. Supp. 655, 659 (D. N.D. 1968).
In Maragon v. United States, supra, a husband and wife who both had income, filed a joint 1953 income tax return as a result of which they became entitled to an overpayment refund. Instead of refunding the overpayment, the Service applied the full amount to a 1944 tax liability incurred by the husband prior to the taxpayers' marriage. The court held that since joint and several tax liability applies only to joint returns by both taxpayers, and not to separate tax returns of each, the plaintiff wife was entitled to her refund. The facts in the case at bar differ markedly from those in Maragon. Most importantly, here the husband generated all the taxable income and the taxpayers were married prior to all the critical events.
Revenue Ruling 74-611, which expressly revoked Revenue Rulings 56-92, 1956-1 C.B. 564, and 71-324, 1971-2 C.B. 410,
lays plaintiffs' claim completely to rest. There the husband and wife filed a joint return wherein the entire tax liability was paid by the wife. Subsequently, it was determined that there was an overpayment, which the Service credited against tax due from the husband for a prior year. Reasoning that because a joint income tax return does not create new property interests for a husband or wife in each other's income tax overpayment,5Revenue Ruling 74-611 declares that the Service's action was improper.
In this case, the wife having paid the entire amount of the tax is entitled to the entire amount of the overpayment. Accordingly, the Service may not credit the overpayment on the joint return against the separate tax liability of the husband for a prior year.
For the above-stated reasons then, the plaintiff's motion for summary judgment will be denied, and the defendant's motion for summary judgment will be granted.
AND NOW, this 29th day of July 1975, after careful consideration of the cross-motions for summary judgment in the above-captioned proceeding, and the memoranda of law and oral argument in support thereof, it is Ordered that:
1. the motion of the plaintiffs for summary judgment is ...