Category: Individuals Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Background Taxpayers are married individuals living in a community property state. The taxpayers are estranged and plan to file separate returns for 1997 reporting on the return of each spouse the amounts actually earned by that spouse. In other words, there will be no splitting of income as required under community property law. Each separate return will show no tax due. Even if the returns were filed correctly, still there would be no tax due. For 1998 estimated tax purposes, the taxpayers will rely on the fact that there was no tax shown on their 1997 returns in order to avoid the necessity of paying 1998 estimated tax payments.
Is it possible that the irregularities associated with the 1997--i.e., failure to properly split community incomecould negate the taxpayers' ability to avoid 1998 estimated tax payments? Answer In my view, as long as the 1997 returns are non-frivolous and filed showing no tax due, the taxpayers can rely on that for 1998 estimated tax purposes.
Section 6654(d)(1)(B) defines the required annual payment for estimated tax purposes. This required payment is stated in terms of the tax shown on the return of the individual for the preceding tax year. It seems clear that even if the amount shown on the preceding return is ultimately determined to be incorrect, estimated tax requirements are still based on what the original return says, not the tax as ultimately determined. See Revenue Ruling 83-36, 1983-1 CB 358. This seems to be the case even if the prior return was fraudulent. See G. Schwarzkopf, 246 F 2d 731, 57-2 USTC ¶9816 (CA3, 1957). Of course there are circumstances where the return filed is so incomplete that the Service does not even view it as a return. For example, tax protesters often file returns which simply state their belief that the income tax is unconstitutional or some other frivolous objection to the tax system. Such filings are not viewed as returns at all. It seems to me if the Service actually accepts the return in question as a real return and not frivolous, that returndespite its flawsshould control the estimated tax requirements for the following year. |
