Taxing Lessons From Court Decisions

Decisions– Your estimate may vary

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According to an old expression, the only difference between an estimate and a guesstimate is the confidence of the person providing the answer. When you’re calculating your federal estimated income tax payments, confidence in the answer is a plus because penalties can be substantial.

Here are questions about estimated income tax rules based on a recent Chief Counsel Advice. The IRS Office of Chief Counsel is confident about their conclusions. How confident are you in your answers?

1.

An overpayment on a joint return ceases to be an overpayment and becomes an estimated tax payment once the taxpayers elect to credit the amount to the next year’s estimated taxes.

 

or

 

 

2.

For estimated tax payments made in a joint declaration of estimated tax for a year in which the taxpayers wind up filing separate returns, the taxpayers may allocate the payment in any consistent manner that they agree upon.

 

or

 

 

3.

When taxpayers cannot agree on how to split estimated tax payments in the situation described in question 2, the payment is allocated between them in proportion to the tax liability reported on the separate tax return for the current year. This “estimated tax payment allocation rule” comes from a 1976 revenue ruling (76-140), under a treasury regulation (1.6015(b)-1(b)) that is now obsolete.

 

or

 

 

4.

The source of the funds is not relevant to the allocation of a payment made in a joint declaration of estimated tax unless circumstances show that the payment submitted with a joint estimated tax voucher is not in fact a joint payment.

 

or

 

 

5.

When divorced taxpayers file consistent returns allocating the estimated tax payments they made during a year in which they were married, those returns are considered evidence of an agreement between the taxpayers as to allocation of the estimated tax payments, even if the payments are entirely allocated to only one of the taxpayers.

 

or

 

 

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Note: Taxing Lessons provides a summarized version of sometimes lengthy court decisions. The full case may include facts and issues not presented here. Please use the link provided in the post to read the entire case.

This information should not be considered legal, investment, or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment, or tax advice. Always consult your legal, investment, and/or tax advisor regarding your personal situation.

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Right answer!

See sections 6402(b) and 301.6402-3(a)(5).

Sorry, wrong answer :(
Right answer!

See treasury regulation 1.6654-2(e)(5)(ii).

Sorry, wrong answer :(
Right answer!

Although section 6015 of the code was repealed in 1984 (current section 6015 is the innocent spouse provision), the IRS has continued to use the allocation rules in obsolete regulation 1.6015(b)-1(b). Various IRS publications and manuals follow these allocation rules and tell taxpayers to follow them as well. The IRS says the formula remains sound, notwithstanding the repeal of the declaration of estimated tax requirements of section 6015.

Sorry, wrong answer :(
Right answer!

See Chief Counsel Advice 2017-27007.

Sorry, wrong answer :(
Right answer!

See Chief Counsel Advice 2017-27007.

Sorry, wrong answer :(
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