Taxpayer prevailed, in spite of using wrong form

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A taxpayer who intended to file for innocent spouse relief (available when a joint filer claims no liability for items on a tax return), instead filed Form 8379, “Injured Spouse Allocation” (used when a joint filer loses all or part of a refund due to the spouse’s debts). The IRS and the U.S. Tax Court rejected her claim. But the 9th Circuit Court of Appeals found that she met the requirement of the “informal claim doctrine” and, therefore, her innocent spouse relief claim was timely filed.

Timely tax filing is crucial

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If a tax refund claim is denied, the taxpayer may file a refund lawsuit, within two years of the date the IRS mails the disallowance notice. In one case, a corporation received a refund that should have included (but didn’t) substantial interest due to the lateness of the refund. The corporation then filed a refund suit to recover the interest, but not within the two-year limit. The U.S. District Court rejected the claim, stating that, outside of the two-year limit, the court lacked jurisdiction.

Funeral expenses can’t be deducted

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On their joint tax return, a married couple deducted $27,400 in funeral and estate administration expenses they’d paid after the wife’s father died. The IRS denied the deductions and the U.S. Tax Court agreed. “Funeral expenses are clearly personal or family expenses” that are nondeductible, the court stated. The taxpayers said they’d relied on various IRS publications in claiming the deductions. The court explained their reliance on the publications was “misplaced” because they discussed different expenses.

Auto racing team gets a green flag

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When businesses dispose of assets, gain or loss must generally be recognized on tax returns, depending on the nature of the disposition (by sale, exchange, or involuntary conversion). In a private letter ruling, the IRS approved how a Formula 1 auto racing team handled its auto parts disposition for gain and loss purposes. Due to the unique nature of auto racing, the IRS ruled that each part used to build race cars for each specific race was the appropriate asset to be valued for disposition purposes. (PLR 201710006)