How to Apply Joint Estimated Tax Payments When Filing Separately

married couple who has filed jointly in the past—and made joint estimated income tax payments for the current tax year—may decide to file separately for that year. This could arise, for example, with a couple who was separated by the end of the tax year but had no legal separation agreement or divorce decree at that time. (Such an agreement or decree would allow only for filing single, not married filing separately). With so many married clients moving toward divorce, the question of how to allocate the joint payments can come up again and again; CPAs are well-advised to know the answer.

ALLOCATION RULES
The question is how to allocate the joint estimated tax payments between spouses. The answer is in regulations section 1.6015(b)-1(b), which provides that when a joint declaration of estimated tax is made, but a joint return is not filed for the same tax year, the payments may be treated as being made by either spouse, or may be divided between them in any manner agreeable to them. However, if the spouses do not agree to a division, the payments are to be allocated to each of them in the ratio of each spouse’s separate tax to the aggregate tax imposed.

Example 1. Husband H’s 2004 tax bill, using married filing separately filing status, is $16,000; wife W’s 2004 tax bill, using the same filing status, is $24,000. Their total 2004 estimated tax payments were made married filing jointly and totaled $22,000. They agree to divide the payments evenly. Thus, H and W can each apply $11,000 of the payments to their 2004 tax bills.

Example 2. The facts are the same as in Example 1, except that H and W do not agree on an allocation ratio. Thus, under regulations section 1.6015(b)-1(b), 40% ($16,000/$40,000) of the $22,000 total payment, or $8,800, applies to H; 60% ($24,000/$40,000), or $13,200, applies to W.

CURRENT IRS POLICY
The regulation cited above was issued under former IRC section 6015, Declaration of Estimated Income Tax by Individuals, which was repealed in 1984. Current section 6015 contains innocent spouse rules. As explained in chief counsel advice (CCA) 200011047, the IRS still follows the regulations section 1.6015(b)-1(b) allocation rules; see Bell , 818 F Supp 444 (DC MA 1993).

PLANNING
If each spouse’s return is prepared by a different CPA firm, the spouses and their tax advisers should discuss the allocation of the payments and try to reach an agreement, to avoid an IRS notice. Statements showing the allocation should be prominently attached to the returns.

If the parties can’t reach an agreement, the spouse who made the actual payments should consider attaching an explanatory statement to the return and providing copies of any documentation (for example, canceled checks) showing the amounts were from bank accounts titled only in the payer’s name.

For more information see the Tax Clinic, edited by Allen Beck, in the October 2004 issue of The Tax Adviser.

—Lesli S. Laffie, editor
The Tax Adviser