25.18.5 Injured Spouse

Manual Transmittal

March 07, 2017

Purpose

(1) This transmits revised IRM 25.18.5, Community Property, Injured Spouse.

Material Changes

(1) Minor editorial changes have been made throughout this IRM.

(2) Significant changes to this IRM are reflected in the table below.

Reference Description
IRM 25.18.5.1 (3) and IRM 25.18.5.1 (4) Added guidance to clarify the general practice of the service to offset the entire IRC 6402 debt where spouses have separate interest in joint overpayments when filing a joint return.
IRM 25.18.5.1 (5) Added guidance to clarify the definition of the terms "amount retained" and "amount refunded" as they relate to an injured spouse claim.
IRM 25.18.5.2 (2) Updated guidance describing offsets for federal tax debts.
IRM 25.18.5.5 and IRM 25.18.5.6 Added two new subsections related to same-sex marriage and registered domestic partners.
IRM 25.18.5.5 through IRM 25.18.5.13 Prior reference IRM 25.18.5.5 through IRM 25.18.5.13 have new reference IRM 25.18.5.7 through IRM 25.18.5.15. Due to adding new IRM 25.18.5.5 and IRM 25.18.5.6 all subsequent subsections were renumbered. No changes were made unless otherwise stated.
IRM 25.18.5.10 Added guidance to clarify that if the IRC 6402 debt is not involving federal tax debts, the amount retained is limited to the liable spouse’s share of the community property, without regard for the state law rule giving liable spouse an interest in the community property above 50%, and any portion of the refund that is the liable spouse’s separate property.
IRM 25.18.5.11 (1) a. Arizona. Added guidance to clarify post marital obligations that are not community obligations may be satisfied from 50% of community property. The service takes the position that tax liabilities are community debts. Thus, the Service may retain 100% of the community property portion of the overpayment to satisfy tax debts.
IRM 25.18.5.11 (1) b. California, Idaho and Louisiana. Added guidance to clarify the injured spouse would be refunded the portion of the overpayment that is the injured spouse’s separate property.
IRM 25.18.5.11 (1) c. New Mexico, Nevada and Washington. Added guidance to clarify whatever is left over would be refunded to the injured spouse.
IRM 25.18.5.11 (1) d. Texas. Guidance reorganized and duplicate guidance deleted. Added guidance to clarify whatever is left over would be refunded to injured spouse.
IRM 25.18.5.11 (1) e. Wisconsin. Reorganized guidance to clarify post determination date debts.
IRM 25.18.5.12 (1) c. Updated guidance to reflect the SMCP of a spouse is not subject to any liabilities that the other spouse incurred before marriage, or for any nontortious liabilities the other spouse incurs during marriage.
IRM 25.18.5.12 (1) g. Added guidance to clarify offsetting the overpayments.
IRM 25.18.5.12 (1) h. Updated guidance characterizing the injured spouse’s overpayment under Texas law.
IRM 25.18.5.13 Updated guidance to clarify order of application when there are multiple obligations.
IRM 25.18.5.14 Updated guidance to clarify offsets without a joint return.
IRM 25.18.5.15 Updated to clarify the Service is usually deciding how much to retain, not how much to offset when an injured spouse files a claim.

Effect on Other Documents

IRM 25.18.5 dated March 4, 2011 is superseded.

Audience

This IRM section is intended to address the needs of all Service employees who are working on cases involving married taxpayers domiciled in community property states, or cases otherwise raising community property issues.

Effective Date

(03-07-2017)

Michael W. Damasiewicz
Director, Examination–Field and Campus Policy, SE:S:E:HQ:EFCP
Small Business/Self-Employed

Background - IRC 6402 Offsets

  1. IRC 6402 gives the Service the ability to offset overpayments to satisfy certain unpaid debts. These debts include:

    1. Unpaid federal tax liabilities.

    2. Past due child support.

    3. Past due debts owed to other federal agencies.

    4. Past due legally enforceable state income tax obligations owed to a state.

  2. Creation of the Right to Offset for Debts. Past due debts owed to other federal agencies, past due child support, past due legally enforceable state income tax, and past due unemployment compensation obligations become eligible for offset after receipt by the Secretary of the Treasury of a notification from the federal agency or the state. See IRC 6402(c), IRC 6402(d)(1) and IRC 6402(e)(1). Unpaid federal tax liabilities are eligible for IRC 6402 offset upon assessment. No preliminary notices are required before an offset can be made. Fulgoni v. United States, 23 Cl. Ct. 119, 91-1 U.S.T.C. ¶50,256, 67 A.F.T.R.2d ¶91-462 (1991).

  3. How Offset Issues Arise. When spouses file joint income tax returns, each spouse has a separate interest in the jointly reported income and in any overpayment. See Rev. Rul. 74-611, 1974-2 C.B. 399, amplified by, Rev. Rul. 85-70, 1985-1 C.B. 361. If both spouses are liable for a debt described in IRC 6402, the entire overpayment may be offset. Offset issues arise where spouses file joint returns and only one spouse owes an IRC 6402 debt. The general practice of the Service is to offset the entire debt. See Rev. Rul. 84-171, 1984-2 C.B. 310. However, under well-settled law, where spouses file joint returns and report a refund or overpayment, the spouses have separate interests in the joint overpayment. See Rev. Rul. 80-7, 1980-1 C.B. 296, amplified byRev. Rul. 87-52, 1987-1 C.B. 347. The spouse who is not liable for the debt (referred to as the “injured spouse”) may file a claim for his or her portion of the refund (referred to as an “injured spouse claim”). In this circumstance, an allocation must be made to determine the liable spouse's interest in the overpayment, the amount that can be offset for the liable spouse's debt, and the amount to be refunded to the injured spouse. See Rev. Rul. 80-7. Injured spouse issues can arise in all U.S. jurisdictions. However, due to different property rights in income tax and withholding and other credits, there is a difference in the allocation process for community property states as opposed to the other states. See Rev. Rul. 85-70.

  4. Injured Spouse Claims. If spouses file a joint income tax return and an obligation described in IRC 6402 is owed by one of the spouses, the Service will generally offset the entire overpayment. See Rev. Rul. 84-171. If the injured spouse files a claim for his or her share of the overpayment, the Service is required to refund the portion of the overpayment to which the injured spouse is legally entitled. See IRM 25.15.1.2.5, Relief from Joint and Several Liability-Injured Spouse Claims; 31 CFR 285.2(f) and (g). An injured spouse obtains his or her portion of the overpayment by filing a Form 8379, Injured Spouse Allocation. See IRM 25.15.1.2.5. An injured spouse claim can also be filed with an original return. As will be discussed below, in some circumstances the Service may have the right under IRC 6402 to offset all or part of the community property portion of the overpayment. The interest a liable spouse has in the community property portion of the overpayment varies from state to state. Exhibit 25.18.5-1, contains examples of the application of injured spouse rules in various states and for various types of liabilities.

  5. Amount Retained and Amount Refunded. As discussed above, if spouses file a joint return and one of them owes an IRC 6402 debt, the Service will offset the entire overpayment, and only refund the injured spouse’s share of the refund if an injured spouse claim is filed. However, if the injured spouse files a claim with the joint return and the claim is allowed, the Service will refund the injured spouse’s share of the overpayment. For purposes of IRM 25.18.5, the amount of the overpayment the Service keeps after an injured spouse claim is filed in either situation is referred to as the "amount retained." The injured spouse’s portion of the overpayment that is refunded after the injured spouse claim is filed is referred to as the "amount refunded."

  6. Injured Spouse v. Innocent Spouse. Injured spouse status and innocent spouse status are frequently confused with each other. Innocent spouse status relieves a spouse of the responsibility for paying taxes that are owed jointly and severally with the other spouse. See IRC 66 and IRC 6015. Injured spouse status involves obtaining a refund of a spouse's interest in an overpayment that has been offset under IRC 6402.

Service Procedures After an Injured Spouse's Claim is Filed

  1. Offsets for Debts Other Than Federal Taxes. If an injured spouse claim is filed by a spouse in a community property state, the Service needs to determine how much will be refunded. If the debt to which the offset was applied is not a federal tax liability, the Service determines what portion of the overpayment represents the injured spouse's share of the overpayment and refunds it.

  2. Offsets for Federal Tax Debts. If the debt involved is a federal tax liability, the Service goes through a two-part procedure to determine how much will be refunded to the injured spouse. See Rev. Rul. 85-70. In the first part, the Service determines each spouse's community property share of the overpayment. The Service will also determine if any portion of the overpayment represents the liable spouse's separate property. The liable spouse's community property and separate property share of the overpayment is the minimum amount the Service will retain if an injured spouse claim is filed and the claim is allowed. The second part of the two-part process is to look to state law to determine if there is a right to retain more than 50% of the community property portion of the overpayment. In a state where a creditor under state law can reach more than 50% of community property to satisfy the separate liability of one of the spouses, the portion above 50% belongs to the liable spouse because state law gives him/her a property interest in that additional portion of the community property. The Service may apply his/her greater than 50% share of community property portion of the overpayment to the separate tax liability. See Rev. Rul. 85-70. As will be discussed below, if an injured spouse claim is filed, no portion of the injured spouse's share of the community property portion of the overpayment can be retained for an IRC 6402 debt not relating to federal taxes, such as child support, state income taxes or unemployment compensation (under IRC 6402(c), (d), (e), or (f)). The second part of the procedure only applies to claims for federal taxes (under IRC 6402(a)).

Calculating the Injured Spouse's Share of the Overpayment

  1. Injured Spouse’s Share of the Overpayment. The injured spouse’s share of the overpayment is computed by subtracting that spouse's share of the joint liability, determined in accordance with the separate tax formula, from that spouse's contribution of credits toward the joint liability. The amount credited cannot exceed the amount of the joint overpayment.

  2. Separate Tax Formula. Under the separate tax formula, a spouse's share of the joint liability is computed using the separate tax formula, as follows:

    Injured Spouse's Separate Tax Liability ÷ Total of Spouses' Separate Tax Liabilities × Joint Tax Liability Shown on Return = Injured Spouse's Share of Liability



    See Rev. Rul. 85-70; Rev. Rul. 80-7, amplified byRev. Rul. 87-52, incorporating by reference Treas. Reg. 20.2053-6(f). As the formula shows, it is necessary to calculate each spouse's separate tax liability.

  3. Injured Spouse's Separate Tax Liability. To determine the injured spouse's separate tax liability for purposes of the separate tax formula, each spouse's tax liability must be determined as if they filed separate returns. Rev. Rul. 80-7, amplified by Rev. Rul. 87-52; Treas. Reg. 1.6654-2(e)(5)(ii)(B). This requires an allocation of income and deductions between the spouses.

  4. Allocating Credits. After determining each spouse's share of the tax under the separate tax formula, it is necessary to allocate and apply the credits (e.g., withholding, estimated tax, and earned income credits) to each spouse's tax liability to determine his or her share of the overpayment. Under no circumstances can an injured spouse be refunded more than the joint overpayment. Thus, for example, it is possible under this formula for the liable spouse to not have sufficient credits to cover his or her share of the tax liability, and for the injured spouse's share of the credits (when applied to his or her liability) to exceed the joint refund. In this circumstance, the injured spouse is entitled to a refund only to the extent of the overpayment on the joint return. See Rev. Rul. 85-70.

  5. State Community Property Law Presumptions. State community property laws create a presumption that property received by spouses is community property. Therefore, in allocating income the Service will assume that the items on the return are community property unless the taxpayers prove otherwise or the law provides that particular items of income, deductions or credits are the separate property of one of the spouses. See Rev. Rul. 85-70.

Allocating Items in Community Property States

  1. Generally. As previously discussed, to do the calculation based on the separate tax formula, the income, deductions and other tax items must be allocated between the spouses and separate tax liabilities must be determined. With respect to spouses in community property states, there are special rules that apply to income and deductions. These rules are more fully set forth earlier in IRM 25.18.1, Basic Principles of Community Property Law, but some common issues that arise are discussed in this section.

  2. Allocating Income. As previously discussed, state community property laws presume that property acquired by spouses is community property. However, the Service will not treat an item as community property if it is clear from the face of the return that federal or other law requires that the item be treated as separate property. See discussion below for examples of items treated as separate property income by law. If items are community property income, each spouse is considered to be the recipient of half of the item. In an injured spouse allocation, items of community property income should be allocated 50% to each spouse.

  3. Deductions. Deductions associated with income are generally characterized in the same manner as the income. Therefore, for example, if Schedule C income is treated as community property and allocated to both spouses, any Schedule C deductions are also treated as community property and split. Deductions that are not related to income (e.g., medical, charitable contributions, property taxes, state taxes) are split, unless it is established that they were paid with separate property, in which case they would be deductible by the spouse whose separate property was used to pay them. Powell v. Commissioner, T.C. Memo. 1967-32; Hunt v. Commissioner, 47 B.T.A. 829 (1942); Bishop v. Commissioner, 152 F.2d 389 (9th Cir. 1945); Commissioner v. Newcombe, 203 F.2d 128 (9th Cir. 1953); Keeter v. United States, 97-2 U.S.T.C. ¶ 50,940, 80 A.F.T.R.2d ¶ 97-5640 (E.D. Cal. 1997). These rules apply to allocations of deductions for injured spouse calculations.

  4. Effect When All Items Are Community Property. When all items on the return are community property, each spouse will be entitled to half of the overpayment. This happens frequently where all of the income on the return is from wages.

Same-Sex Marriage

  1. Same-sex marriage. On June 26, 2015, in Obergefell v. Hodges, 135 S.Ct. 2584 (2015), the Supreme Court held that:

    1. State laws are invalid to the extent they exclude same-sex couples from civil marriage on the same terms and conditions as opposite-sex couples, and

    2. All states must recognize same-sex marriages performed in other states.

    As a result, same-sex married couples receive the same state and federal benefits and burdens as opposite-sex married couples. Therefore, same-sex married couples who domicile in a community property state are subject to community property rules in the same manner as opposite-sex married couples.

Registered Domestic Partners

  1. Registered Domestic Partners. Under the laws of California, Nevada, and Washington, same-sex and opposite-sex registered domestic partners are subject to state community property laws in the same manner as married couples. Cal. Fam. Code § 297.5(a); Nev. Rev. Stat. § 122A.200; Wash. Rev. Code § 26.16.030. However, since registered domestic partners are not married, they cannot file joint federal income tax returns. If a registered domestic partner in California, Nevada or Washington files their individual federal income tax return reporting an overpayment, the overpayment is available to satisfy the separate tax debt of the other registered domestic partner in the same manner it would be available to satisfy a separate debt of a married individual in those states. See IRM 25.18.5.14. Thus, all or part of the overpayment may be offset and applied to the other registered partner’s debt.

Items of Separate Property

  1. In spite of the state community property law presumption, some items of income, deduction or tax may be separate property. This usually occurs because the spouses have provided proof that the items are separate property or because federal law dictates that the items are separate property. When this happens, the affected items should be allocated to the spouse who owns them. Common circumstances where items are separate property include the following:

    1. Marital Agreements. The spouses may have entered into an agreement under state law characterizing all or part of their income as separate property. This would require proof by the spouses of the agreement and compliance with state laws governing such agreements.

    2. Income from Separate Property. In some states, dividends, interest or rents from separate property are separate property. These states include Arizona, California, New Mexico, Nevada and Washington. This requires proof by the spouses that the source of the income was separate property. This is not true in the other community property states.

    3. Capital Gains from Separate Property. Generally, market appreciation in the value of separate property is also separate property. Accordingly, capital gain income may be separate property. This would require proof by the spouses that the property sold was separate property.

    4. Distributions Deemed Separate Property Under Federal Law. Federal law deems some items separate property, including IRA withdrawals, railroad retirement benefits, U.S. savings bonds and ERISA funds. If these items appear on the return, they must be allocated to the spouse who owns them. This does not require any proof by the spouses, since these items are deemed separate property as a matter of law.

Allocating Withholding and Estimated Tax Payments

  1. Wage Withholding. Withholding credits from community property income are community property and are allocated 50% to each spouse. See Treas. Reg. 1.31-1(a); Gilmore v. United States, 290 F.2d 942 (Ct. Cl. 1961), rev'd on other grounds, 372 U.S. 39 (1963). If it is established that the underlying wages are not community property, the withholding should be characterized consistently with the wages.

  2. Estimated Tax Payments. Where spouses make estimated tax payments and subsequently file a joint return with an overpayment subject to an IRC 6402 offset, the estimated tax payments should be allocated in proportion to the spouses' separate tax liabilities. The formula for this is as follows:

    Spouse's Separate Tax Liability ÷ Total of Spouses' Separate Tax Liabilities × Total Estimated Tax Payments = Spouse's Share of Payments



    See Rev. Rul. 80-7, amplified by Rev. Rul. 87-52, incorporating by reference then Treas. Reg. 1.6015(b)-1(b). This formula only applies as a presumption. Ownership of estimated tax payments in the context of a joint return is determined by their source. Elam v. United States, 112 F.3d 1036 (9th Cir. 1997); Gens v. United States, 673 F.2d 366 (Ct. Cl. 1981), cert. denied, 459 U.S. 906 (1982).

    Therefore, if the spouses establish that the source of the payment was community property, the payment should be split evenly. If they establish that it is the separate property of one of the spouses, it should be allocated to that spouse.

Items With Special Allocation Rules

  1. Taxes and Credits. Some taxes and credits are allocated to spouses without regard to community property. These items are exceptions to the community property presumption and are not split. These include the earned income tax credit and self-employment tax.

  2. Earned Income Tax Credit. Under IRC 32(c)(2)(B)(i), the amount of earned income for purposes of the earned income tax credit is calculated without regard to community property laws. If only one spouse has earned income, the credit is allocated to that spouse. If, however, both spouses have earned income and are eligible for the credit, each spouse’s share must be determined. See Rev. Rul. 80-7, amplified byRev. Rul. 87-52. Under IRC 32(b), the credit is phased out as certain income levels are reached. Therefore, for purposes of determining each spouse's contribution toward an overpayment, the credit cannot be allocated on a dollar-for-dollar basis. The allocated amount is arrived at by using the earned income tax credit tables to determine the hypothetical separate earned income tax credit that would have been available to each spouse if that spouse had filed a separate return (and if the earned income tax credit were available on a separate return) and then using the following formula:

    Spouse's Contribution to Earned Income Tax Credit = Spouse's Hypothetical Separate Earned Income Tax Credit ÷ Sum of the Hypothetical Separate earned Income Tax Credits for Both Spouses × Joint Earned Income tax Credit (from joint return)



    SeeRev. Rul. 87-52. For purposes of determining the hypothetical separate credit, each spouse should use the same number of qualifying children as were used to determine the actual joint credit. In addition, because the earned income tax credit is determined without regard to community property laws, it cannot be characterized as community property for purposes of the allocation. This would mean that the injured spouse's share of earned income tax credit would not be available for set-off, since it is the injured spouse's separate property.

  3. Self-Employment Tax. The self-employment tax with respect to self-employment income (net income from a trade or business, other than a partnership) is allocated to the spouse who has management and control over the trade or business. See Treas. Reg. 1.1402(a)-8(a); Heidig v. Commissioner, T.C. Memo. 1986-411; Tolotti v. Commissioner, T.C. Memo. 1987-13. Management and control means actual management and control, not management and control imputed from husband to wife under community property laws. See Treas. Reg. 1.1402(a)-8. Therefore, the self-employment tax is allocated to the spouse actually carrying on the trade or business. For purposes of the injured spouse calculation, self-employment tax should be allocated in accordance with this rule. Similarly, the self-employment tax attributable to a partnership that is a trade or business is allocated to the spouse who is the partner, even if part of the income is otherwise attributable to the other spouse for income tax purposes. See Treas. Reg. 1.1402(a)-8(b).

Determining How Much Can Be Offset

  1. Generally. To determine how much to refund after an injured spouse claim is filed in a community property state, the Service must first determine each spouse's community property share of the overpayment and any separate property. See Rev. Rul. 85-70. Since the payments are frequently all community property, this will usually be 50% of the overpayment.

  2. Offsets for Debts Other Than Federal Taxes. If the IRC 6402 debt is for a liability other than federal taxes, then other federal law applies and the amount of the community property portion of the overpayment that may be retained, if a claim is filed, is limited to the liable spouse's share of the community property, without regard for the state-law rule giving the liable spouse an interest in the community property above 50%, and any portion of the refund that is the liable spouse's separate property. Oatman v. Secretary of the Treasury, 34 F.3d 787 (9th Cir. 1994). The liable spouse’s property interest in the community property portion of the overpayment is not altered by any right that a creditor may have under state law to reach the nonliable spouse's share of the joint refund. In the context of IRC 6402(c), (d), (e), and (f), the IRS is not a creditor of the liable spouse because the debt being collected is not a tax debt. Instead, the IRS is acting as a conduit. The Service follows this position in all community property states. Therefore, in offsets not involving federal tax debts, the Service will refund the injured spouse's community property share of the overpayment and any part of the refund that is the injured spouse's separate property.

  3. Offsets for Federal Tax Debts. If the liability is for federal taxes, however, the amount allocable to the liable spouse's share of the overpayment is the minimum amount that will be retained to apply to the debt. If the applicable state law allows a creditor to reach an additional portion of community property to satisfy the separate liability of one of the spouses, the Service can exercise this right and retain a larger portion of the overpayment. See Rev. Rul. 85-70.

Section 6321 Right to Property as Defined by State Law

  1. State law defines property. IRC 6321 provides the Service with a statutory lien or claim attaching all a taxpayer’s property or rights to property for the amount of the federal tax debt. As discussed previously, some state community property laws define the property reachable by creditors to include more than half of community property for satisfaction of the separate liability of one of the spouses. In the case of an offset, relating to the separate statutory lien for the federal tax debt of one of the spouses, these state laws give the liable spouse a property interest in more than one half of the community property. The Service can rely on these state property laws for attachment of the Service’s statutory lien to and retention of more than half of the community property interest in an overpayment. These rules are complex and care must be taken in applying them. It is often necessary to know when the spouses were married. Service personnel working these claims often do not have this information, therefore they should assume that the liabilities were incurred during marriage unless the taxpayer establishes otherwise. Here is a brief summary of the rules in each of the community property states. These rules are also summarized in Exhibit 25.18.5-1.

    1. Arizona. Premarital tax debts may be satisfied from 100% of community property traceable to or contributed by the liable spouse and 50% of all other community property (i.e., 100% of the withholding attributable to the liable spouse and 50% of the withholding attributable to the non-liable spouse would be available). See Rev. Rul. 2004-71, 2004-30 I.R.B. 74; Ariz. Rev. Stat. § 25-215(B); Prater v. U.S., 268 F. Supp. 754 (D. Ariz. 1967); Medaris v. United States, 884 F.2d 832 (5th Cir. 1989). If any portion of the overpayment is the separate property of the liable spouse, 100% of that portion may be retained to satisfy a premarital obligation. Whatever is leftover would be refunded to the non-liable spouse. Post-marital obligations that are not community obligations may be satisfied from 50% of community property. The Service takes the position that tax liabilities are community debts. Contact Counsel if the taxpayer challenges the treatment of a post-marital tax debt as a community obligation. Thus, the Service may retain 100% of the community property portion of the overpayment to satisfy tax debts in Arizona. See IRM 25.18.4.7, Collecting Post-Marital Liabilities; Hyde v. United States, 72 A.F.T.R.2d ¶ 93-5298 (D. Ariz. 1993). If any portion of the overpayment is the separate property of the liable spouse, 100% of that portion may be retained to satisfy a post-marital obligation. The non-liable spouse would be refunded the portion of the overpayment that is the non-liable spouse’s separate property.

    2. California, Idaho and Louisiana. Both premarital and post-marital tax debts may be satisfied from 100% of community property. Therefore, the Service may retain 100% of the community property portion of the overpayment. See Rev. Rul. 2004-72, 2004-30 I.R.B. 77. If any portion of the overpayment is the separate property of the liable spouse, the Service may also retain 100% of that portion. The non-liable spouse would be refunded the portion of the overpayment that is the non-liable spouse’s separate property.

    3. New Mexico, Nevada and Washington. Premarital tax debts may be satisfied from 50% of the community property portion of the overpayment. See Rev. Rul. 2004-73, 2004-30 I.R.B. 80. If any portion of the overpayment is the separate property of the liable spouse, the Service may also retain 100% of that portion to satisfy a premarital obligation. For post-marital tax debts, the Service may retain 100% of the community property portion of the overpayment. If any portion of the overpayment is the separate property of the liable spouse, the Service may retain 100% of that portion to satisfy a post-marital obligation. Whatever is left over would be refunded to the non-liable spouse.

    4. Texas. All pre- and post-marital tax debts of one spouse may be satisfied with 100% of the liable spouse's sole management community property (i.e., any withholding attributable to the liable spouse's wages), 100% of any part of the overpayment that is attributable to the liable spouse's separate property, and 100 % of any joint management community property (if any property can be characterized as such). See Rev. Rul. 2004-74, 2004-30 I.R.B. 84. Also, the Service may retain 50% of the non-liable spouse’s sole management community property (i.e., any withholding attributable to the non-liable spouse); Id.; Medaris v. United States, 884 F.2d 832 (5th Cir. 1989). This remedy applies to both pre- and post-marital federal tax obligations. Whatever is left over would be refunded to the non-liable spouse. For a discussion of what constitutes sole management and joint management community property, see IRM 25.18.4.4, Management and Control and Collection. For a discussion of the impact of characterizing property as sole or joint management on tax collection generally, see IRM 25.18.4.3, Levies Against a Nonliable Spouse to Reach a Liable Spouse's Share of Community Property. For a more thorough discussion of processing non-liable spouse claims in Texas, see IRM 25.18.5.12.

    5. Wisconsin. Wisconsin debts are classified based on whether they were incurred before or after the "determination date." The determination date is the first day after all of the following have occurred: the marriage; January 1, 1986; and both spouses domiciling in Wisconsin. For predetermination date tax debts, the Service may retain 100% of the community property portion that would have been the liable spouse's but for the community property law (i.e., any withholding attributable to the liable spouse's wages) and 50% of other community property (i.e., any withholding attributable to the non-liable spouse) and 100% of any part of the overpayment that is the liable spouse's separate property. If any portion of the overpayment is the separate property of the liable spouse, the Service may retain 100% of that portion to satisfy a premarital obligation. See Rev. Rul. 2004-71. If one spouse has a separate post-determination-date tax debt, his or her property interest in community property depends on whether the debt was incurred in the interest of the marriage and family (i.e., have a ‘family purpose’). See Rev. Rul. 2004-71. For post-determination-date family purpose obligations, the Service may retain 100% of the community property portion of the overpayment. If the obligation was incurred after the determination date, but not in the interest of the marriage and family, the Service may retain half of community property portion of the overpayment and 100% of any portion of the overpayment that is the separate property of the liable spouse. See Rev. Rul. 2004-71. Whatever is left over would be refunded to the non-liable spouse. Most tax obligations have a family purpose. Hyde v. United States, 72 A.F.T.R.2d ¶ 93-5298 (D. Ariz. 1993). Wisconsin law presumes debts incurred after the determination date are family purpose. The Service takes the position that tax liabilities incurred after the determination date in Wisconsin are family purpose debts. Contact Counsel if the taxpayer challenges the treatment of a tax debt as a family purpose obligation.

Injured Spouse Claims Involving Federal Tax Offsets in Texas

  1. Because of complexities in Texas community property law, it is important to discuss with Counsel how to handle injured spouse claims involving federal tax offsets in Texas.

    1. Management Control Community Property in Texas. Under Texas law, there are two types of community property: Joint Management Community Property (JMCP) and Sole Management Community Property (SMCP). SMCP is property that a spouse is given the sole right to manage, control, or dispose of. SMCP is the property the spouse would have owned if single. Tex. Fam. Code Ann. § 3.102(a). The property includes, but is not limited to:

      (i) Personal earnings
      (ii) Revenue from separate property
      (iii) Recoveries for personal injuries
      (iv) Increase and mutations of, and the revenue from, all SMCP

      A spouse can dispose of his or her SMCP without the consent or agreement of the other spouse. Massey v. Massey, 807 S.W. 2d 391 (Tex. Civ. App. - Houston 1991). Property held in a spouse’s name is presumed to be SMCP of that spouse. Third parties may rely on this presumption in dealing with the spouse, so long as the third party is not a party to a fraud being conducted, or does not have actual or constructive notice that the spouse lacks authority to deal with the property. Tex. Fam. Code Ann. § 3.104(b). JMCP is all community property which is not SMCP. The spouses are joint managers and may not represent each other in dealing with JMCP. Tex. Fam. Code Ann. § 3.102(b); Cooper v. Texas Gulf Industries, Inc., 513 S.W.2d 200 (Tex. 1974).

    2. Separate Property in Texas. As in other community property states, Texas also recognizes the existence of separate property. This includes all property owned prior to marriage, property acquired during marriage by gift or inheritance, and the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage. Neither spouse has an interest in the other spouse’s separate property. See Tex. Fam. Code Ann. § 3.001.

    3. Collection from separate and community property in Texas. Texas state law defines a spouse’s interest in separate and community property subject to collection of federal taxes. Broday v. United States, 455 F.2d 1097, 1099-1100 (5th Cir. 1972). Where one spouse owes a liability, all of the separate property of the liable spouse, all of the SMCP of the liable spouse, and all of the JMCP are subject to the payment of that separate liability. See Tex. Fam. Code Ann. § 3.202. The Service may also reach half of the SMCP of the non-liable spouse to collect a spouse’s separate tax liability. Under Texas law, the SMCP of a spouse is not subject to any liabilities that the other spouse incurred before marriage, or for any nontortious liabilities the other spouse incurs during marriage. See Tex. Fam. Code Ann. § 3.202. Nevertheless, the Service can reach half of the SMCP, because it is community property and state law has given the liable spouse a half interest in it. State law restrictions and exemptions placed on normal creditors do not apply to the IRS. Medaris v. United States, 884 F.2d 832 (5th Cir. 1989); Broday v. United States, 455 F.2d 1097 (5th Cir. 1972). The Service cannot reach the separate property of the non-liable spouse. Unlike some other community property states, the Service’s collection remedy for unpaid taxes in Texas is not affected by whether the liability was incurred before or during marriage.

    4. Processing Injured Spouse claims in Texas. The tax collection principles cited in c., above, also apply in offsetting overpayments for tax debts under IRC 6402 in Texas. If there is a federal tax debt, the Service may retain 100% of any JMCP, 100% of any portion of an overpayment that is the liable spouse's SMCP (i.e., any withholding attributable to the liable spouse's wages) and 50% of the injured spouse's SMCP (i.e., any withholding attributable to the injured spouse), and 100% of any part of the overpayment that is the liable spouse's separate property. See Rev. Rul. 2004-74. The remainder would be refunded. However, before an offset can be made, it is necessary to determine what portion of the overpayment can be characterized as separate property, JMCP, and SMCP.

    5. Calculating the Liability of Each Spouse. The first step in determining how much of an overpayment can be offset is to determine the injured spouse’s share of the overpayment. To do this, each spouse’s separate tax liability must be calculated. If all of the items on the return are community property, then the tax on the return will simply be allocated 50% to each spouse. Otherwise, it may be necessary to allocate income and deductions between the spouses, determine each spouse’s separate tax, and go through the separate tax formula. See IRM 25.18.5.3 through IRM 25.18.5.8.

    6. Applying the Credits. Once each spouse’s portion of the tax liability has been determined, then a determination must be made as to each spouse’s share of the tax and payment credits. If all of the credits on the return are community property, then the credits on the return will simply be allocated 50% to each spouse. Otherwise, it may be necessary to allocate the credits between the spouses. See IRM 25.18.5.8.

    7. Offsetting the Overpayments. Once the amount of each spouse’s overpayment has been determined, the amount that can be retained can be determined. Note that in every case, the entire amount of the liable spouse’s overpayment can be retained. As discussed in IRM 25.18.5.10 (2), if the liability is a non-tax debt, then the injured spouse should be refunded the entire overpayment that is attributable to him or her. However, if the debt is a tax debt, then the Service can look to state law property rights to determine if any portion of the injured spouse’s overpayment can be retained. With respect to spouses residing in Texas, as discussed in d. above, the Service can retain any portion of the injured spouse’s overpayment that is attributable to the liable spouse’s SMCP or is JMCP. The Service cannot retain any portion of the injured spouse’s overpayment that is attributable to the injured spouse’s separate property. In addition, the Service should not retain more than half of the overpayment that is attributable to the injured spouse’s SMCP. In the steps described in e. and f. above, the portions of the overpayment that are community property are allocated 50-50 to each spouse. In this division, the liable spouse’s overpayment includes 50% of the injured spouse’s SMCP, from which the Service is permitted to collect to pay the liable spouse’s separate liability. The Service need not retain any portion of the injured spouse’s refund that is his or her SMCP because the 50% has already been included in the steps described in e. and f. In addition, in the steps described in e. and f, the portions of the overpayment attributable to separate property will also have been allocated to each spouse. However, the injured spouse’s overpayment includes 50% of the liable spouse’s SMCP and 50% of the JMCP, which the Service is permitted to retain to pay the liable spouse’s tax debt. To determine the portion of the injured spouse’s overpayment attributable to 50% of the liable spouse’s SMCP and 50% of the JMCP, it is necessary to characterize the liable spouse’s and injured spouse’s community property portions of the overpayment under Texas law.

    8. Characterizing the Injured Spouse’s Overpayment Under Texas Law. To characterize the injured spouse’s overpayment, it is necessary to first characterize the various payment credits that have been applied to the injured spouse’s side of the overpayment ledger. As discussed above, generally, a spouse’s wages are considered to be his or her SMCP and therefore, any withholding attributable to a particular spouse’s wages should be considered his or her SMCP. Wynne v. United States, 306 F. Supp. 2d 660, 2004 U.S. Dist. LEXIS 3574, 93 A.F.T.R.2d 692, 2004-1 U.S.T.C. ¶ 50,184 (N.D. Tex. 2004). Any earned income credit or estimated tax paid on a separate declaration is separate property. The presumption under Texas law is that items are JMCP, unless they are classified otherwise. Accordingly, the presumption with respect to other credits is that they are JMCP. Each spouse’s share of the overpayments is the same proportion each spouse’s payment credit bears to the total payments made. Gens v. United States, 673 F.2d 366 (Ct. Cl. 1981), cert. denied, 459 U.S. 906 (1982); Glaubke v. United States, 78-1 U.S.T.C. ¶ 9206, 41 A.F.T.R.2d 759 (E.D. Va. 1978). Thus, the total payments should be characterized and the overpayment should be considered to have the same proportionate character as the payments. For example, assume that the payment credits totaling $1,000, the tax liability is $900 and the overpayment is $100. Further assume the total payment credits include $100 withheld from the sale of separate property stock, $600 of the injured spouse’s wage withholding, and $300 of the liable spouse’s withholding. The total payments are made up of 30% of the liable spouse’s SMCP, 10% of the injured spouse’s separate property, and 60% of the injured spouse’s SMCP. The overpayment would be applied to the tax in the same proportion as the payments. Thus, the $900 liability would be paid with $90 of the injured spouse’s earned income credit (10%), $270 of the liable spouse’s SMCP (30%), and $540 of the injured spouse’s SMCP (60%). The overpayment then would be made up of $30 SMCP of the liable spouse (30%), $10 separate property of the injured spouse (10%), and $60 SMCP of the injured spouse (60%). The Service could retain $60 of the overpayment, $30 of which represents the liable spouse’s SMCP (the liable spouse’s withholding) and $30 of which represents one-half of the injured spouse’s SMCP (the injured spouses’s wage withholding), and refund the remaining $40, of which $10 represents the injured spouse’s separate property (sale of separate property stock) and $30 represents one-half of the injured spouse’s SMCP (the injured spouse’s wage withholding). See IRM 25.18.5.15 (5).

Multiple Obligations: Order of Application

  1. Where there are liabilities for unpaid federal taxes and other liabilities described in IRC 6402, the offset should first be applied to the federal tax liabilities. See IRC 6402(f)(2); Treas. Reg. 301.6402-5(d)(1). If there is any amount left over after this application, it would then be applied to the other liabilities. If an injured spouse claim is filed, the Service cannot offset more than 50% of a community property overpayment to satisfy a child support obligation, a debt to another federal agency, a state income tax liability, or unemployment compensation liability pursuant to IRC 6402 If unpaid federal tax liabilities exceed 50% of the portion of the overpayment that is community property and there are other liabilities not involving federal taxes, the Service can only apply the overpayment to the extent of the federal tax debt. Any excess cannot be applied to the other obligations, but should be refunded. This is because offset under IRC 6402 for the payment of non-tax obligations may not exceed 50% of the community property. The Service will have already taken the maximum amount (50%) of the refund and applied it to the tax obligation. If the tax debt is less than 50% of the community property portion of the joint overpayment, then the Service can retain the full amount of the tax debt. Then, the Service can retain the difference between the tax offset and 50% of the overpayment and apply this amount to the liable spouse’s other IRC 6402 debt. In this case, the remaining 50% of the joint overpayment must be refunded to the injured spouse. The priority of offset between IRC 6402 obligations after federal taxes is as follows: past due child support; debts owed to federal agencies, state income tax obligations; and unemployment compensation liabilities. See IRC 6402(f)(2). Priority between multiple debts owed to federal agencies is determined by the order in which the debts accrued. See IRC 6402(d)(2). Priority between multiple debts owed to a state or states will be determined by the order in which the debts accrued. See IRC 6402(e)(3) and IRC 6402(f)(2).

Offsets Without a Joint Return

  1. The Service may legally offset under IRC 6402 a spouse's overpayment to satisfy an unpaid tax liability of the other spouse, even though the overpayment was reported on a separate return. Eaves v. United States, 433 F.2d 1296 (10th Cir. 1970). Assuming that the nonliable spouse who filed the return reported his or her portion of the community income correctly, an offset is only permissible to the extent that state law gives the liable spouse a property interest in the overpayment reported on the nonliable spouse’s separate return. The portion of the overpayment that is separate property is not subject to offset because the liable spouse has no property interest. The portion of the overpayment that is community property may be retained to the extent state law permits collection against the nonliable spouse’s half of community property for an obligation of the liable spouse. Presumably, in filing a separate return, the non-liable spouse has already made the allocation, and the reported overpayment would represent his or her share of the overpayment but for state law giving the liable spouse a property interest in it. However, the examiner should verify that the income was reported properly under community property principles.

Injured Spouse Examples

  1. Debts Not Involving Federal Taxes

    Husband and wife are married and domicile in Louisiana. Husband owes $25,000 for an unpaid federal student loan from before his marriage. For 2010, husband and wife file a joint return. Husband earned $40,000 in wages and had withholding of $4,000. Wife earned $50,000 and had withholding of $8,000. They report a tax liability of $9,000 and a refund of $3,000. The Service offsets the entire refund. Wife files an injured spouse claim.

    The Service should refund $1,500 (half of the overpayment), calculated as follows:

    Husband Wife
    Husband's wages $20,000.00 $20,000.00
    Wife's wages 25,000.00 25,000.00
    Tax $ 4,500.00 $ 4,500.00
    Less:
    Husband's withholding $ 2,000.00 $ 2,000.00
    Wife's withholding 4,000.00 4,000.00
    Overpayment $ 1,500.00 $ 1,500.00
  2. Earned Income Tax Credit Allocation

    Husband and wife are married and domicile in Wisconsin. Husband owes back child support of $17,000 from a previous marriage. For 2010, husband has wages of $8,000 and withholding of $900. Wife has wages of $13,000 and withholding of $600. They have two dependent children who lived with them. They file a joint return and report an earned income credit of $2,133 and a tax liability of $366. They report an overpayment of $3,267. The entire amount is offset by the Service for the child support claim. If wife files an injured spouse claim, the Service should refund $1,727 her, calculated as follows:

    (i) Allocation of Earned Income Credit
    Wife's earned income $13,000
    Husband's earned income $ 8,000
    Wife's hypothetical earned income credit (from EIC table) $3,817
    Husband's hypothetical earned income credit (from EIC table) $3,210
    Wife's share of earned income credit = $3,817/$7,027 X $2,133 = $1,158
    (ii) Allocation of Taxes and Credits
    Wife's Husband's
    Wife's wages $ 6,500.00 $ 6,500.00
    Husband's wages 4,000.00 4,000.00
    Tax $ 183.00 $ 183.00
    Wife's withholding 300.00 300.00
    Husband's withholding 450.00 450.00
    Earned Income Credit 1,158.00 975.00
    Overpayment $ 1,725.00 $ 1,542.00
  3. Federal Tax Claims and Section 6402 Offset.

    Husband and wife live in California. Husband owes $18,000 in employment taxes from 2008, before the marriage. For 2010, husband and wife file a joint return. Husband earned $50,000 in wages and had withholding of $8,000. Wife earned $35,000 and had withholding of $7,000. They file a joint return and report a tax liability of $14,481 and a refund of $519. The Service offsets the entire refund. Wife files an injured spouse claim. The injured spouse claim should be denied. Although normally the wife might have a half-interest in the overpayment since it is entirely community property, the liable spouse has a property interest in the all of the refund. Under California law all of the community property is liable for a premarital debt of one of the spouses. Accordingly, the Service can offset the entire refund of $519.

  4. Order of Application

    Husband and wife live in California. Husband owes $1,500 in premarital taxes and $3,000 for child support from a previous marriage. All items reported on the return are community property. For 2010, husband received wages of $35,000 and had withholding of $6,000. Wife received wages of $13,000 and had withholding of $3,000. They file a joint return and report a joint tax liability of $5,261 and an overpayment of $3,739. If the Service offsets the entire overpayment and wife files an injured spouse claim, wife should receive a refund of $1,869.50 and the overpayment should be applied as follows:

    (i) Allocation of Taxes and Credits

    Husband Wife
    Husband's wages $ 17,500.00 $ 17,500.00
    Wife's wages 6,500.00 6,500.00
    Tax $ 2,630.50 $ 2,630.50
    Less:
    Husband's withholding $ 3,000.00 $ 3,000.00
    Wife's withholding 1,500.00 1,500.00
    Overpayment $ 1,869.50 $ 1,869.50



    (ii) Application of Offset to Overpayment

    Amount applied to full-pay federal tax debt $ 1,500.00
    Remaining amount applied to past due child support 369.50
    Total overpayment offset $ 1,869.50
  5. Offsetting Refunds in Texas to Apply to Federal Income Tax Liabilities.

    Husband and wife are married and domicile in Texas. Husband owes a separate tax liability from a prior year of $12,000. Husband and wife file a joint federal income tax return for 2013. The return reports a total tax liability of $7,923 and a total overpayment of $487. Husband received wages of $65,305, with $7,906 withheld for income taxes. Wife received wages of $9,262, with $464 withheld for income taxes. Husband received a premature withdrawal from an IRA in the amount of $120, incurring a tax under IRC 72(t) of $12 (which is included in the income tax liability). The spouses claimed the standard deduction. They also claimed two exemptions on the return. In addition, they claimed a telephone excise tax refund of $40.

    The first step is to calculate each spouse’s separate tax liability. This would be done as follows:

    Item Character Amount Allocated to Husband Amount Allocated to Wife
    Husband's wages Husband's SMCP $32,652.50 $32,652.50
    Wife's wage's Wife's SMCP 4,631.00 4,631.00
    IRA income Husband's separate property 120.00
    Standard deduction 5,150.00 5,150.00
    Exemptions 1 1
    Separate income tax liability $3,965.53 $3,947.53


    Note:

    Note that the additional tax under IRC 72(t) is not included in the income tax calculation at this point. It is husband’s separate liability and will be added back to his income tax liability after his income tax liability is calculated under the separate tax formula.



    Next the separate tax formula should be applied as follows:

    $3,947.53/$7,913.06 X $7,911.00 = $3,946.50 (wife’s share of the joint liability)

    $3,965.53/$7,913.06 X $7,911.00 = $3,964.50 (husband’s share of the joint liability)

    Therefore, each spouse’s share of the income tax liability would be as follows:

    Husband Wife
    Income tax liability $3,964.50 $3,953.00
    IRC 72 tax 12.00
    Tax liability $3,976.50 $3,946.50


    Note:

    Note that because the IRA account and withdrawal is husband’s separate property under federal law, the $12 IRC 72(t) additional tax is now added back to husband’s income tax liability.



    Next the payments should be characterized and applied as follows:

    Item Character Husband Wife
    Husband's withholding Husband's SMCP $3,953.00 $3,953.00
    Wife's withholding Wife's SMCP 232.00 232.00
    Tel. excise tax refund JMCP 20.00 20.00
    Total $4,205.00 $4,205.00
    Less tax liability 3,976.50 3,946.50
    Overpayment $ 228.50 $ 258.50



    The entire portion that represents husband’s overpayment can be retained. The next issue is to determine how much of wife’s overpayment can be retained. Under Texas law, the Service can offset 100% of the portion of the refund that is husband’s SMCP and 100% of that portion that is JMCP. In addition, the Service can retain 50% of the portion that is wife’s SMCP, which it has already done by retaining the husband’s portion of the overpayment. The Service cannot retain any part of the refund that is wife’s separate property. Therefore, the Service can retain any portion of wife’s refund that is either JMCP or husband’s community property interest in the wife’s SMCP. If we assume that the tax payments were applied proportionately to the tax liability, the amount of the refund that is JMCP or husband’s SMCP would be calculated as follows:

    Wife's overpayment X Wife’s half of husband’s SMCP payment + Wife’s half of JMCP payment ÷ Wife's total payments = Amount of wife's over-payment that can be retained


    or

    $258.50 X ($3,953 + $20)/$4,205) = $244.24

    Consequently the amount wife can retain is equal to her portion of her overpayment minus the amount that can be retained.

    or

    $258.50 - $244.24 = $14.26

Amount of Overpayment That Can Be Offset To Satisfy an IRC 6402 Debt

Type of IRC 6402 Debt Arizona California Idaho Louisiana Nevada
Non Federal Tax Debt, including Child support State income tax Debt to other federal agency 50% of the community property portion of the refund plus any separate property interest of the liable spouse. 50% of the community property portion of the refund plus any separate property interest of the liable spouse. 50% of the community property portion of the refund plus any separate property interest of the liable spouse. 50% of the community property portion of the refund plus any separate property interest of the liable spouse. 50% of the community property portion of the refund plus any separate property interest of the liable spouse.
Federal tax debts incurred before marriage 100% of the refund that is community property traceable to or contributed by the liable spouse, and 50% of any part of the refund that represents other community property, plus all of the refund that is separate property of the liable spouse. 100% of the community property portion of the refund, plus all of the refund that is separate property of the liable spouse. 100% of the community property portion of the refund, plus all of the refund that is separate property of the liable spouse. 100% of the community property portion of the refund, plus all of the refund that is separate property of the liable spouse. 50% of the community property portion of the refund, plus all of the refund that is separate property of the liable spouse.
Federal tax debts: Incurred after marriage Assuming it is an obligation incurred to benefit the community, 100% of the community property portion of the overpayment and all of the portion that is the separate property of the liable spouse. 100% of the community property portion of the refund, plus all of the refund that is separate property of the liable spouse. 100% of the community property portion of the refund, plus all of the refund that is separate property of the liable spouse. 100% of the community property portion of the refund, plus all of the refund that is separate property of the liable spouse. 100% of the community property portion of the refund, plus all of the refund that is separate property of the liable spouse.
Type of IRC 6402 Debt Continuation New Mexico Texas Washington Wisconsin*
Non Federal Tax Debt, including Child support State income tax Debt to other federal agency 50% of the community property portion of the refund plus any separate property interest of the liable spouse. 50% of the community property portion of the refund plus any separate property interest of the liable spouse. 50% of the community property portion of the refund plus any separate property interest of the liable spouse. 50% of the marital (community) property portion of the refund plus any individual property interest of the liable spouse.
Federal tax debts incurred before marriage 50% of the community property portion of the refund, plus all of the refund that is separate property of the liable spouse. 100% of the liable spouse's sole management community property (e.g., any withholding attributable to the liable spouse's wages) and 50% of the injured spouse's sole management community property (e.g., any withholding attributable to the injured spouse) and 100% of any part of the refund that is attributable to the liable spouse's separate property. 100% of any joint management property (if any can be so characterized) would also be available. 50% of the community property portion of the refund, plus all of the refund that is separate property of the liable spouse. Predetermination date tax debts may be satisfied from 100% of the marital (community) property portion of the refund that would have been the liable spouse's but for the Marital Property Act (i.e., 100% of the portion of the refund attributable to any withholding from the liable spouse's wages) and 50% of other marital (community) property (i.e., 50% of the portion of the refund attributable to the injured spouse's wages) and 100% of any part of the refund that is attributable to the liable spouse's individual (separate) property.
Federal tax debts: Incurred after marriage 100% of the community property portion of the refund, plus all of the refund that is separate property of the liable spouse. 100% of the liable spouse's sole management community property (e.g., any withholding attributable to the liable spouse's wages) and 50% of the injured spouse's sole management community property (e.g., any withholding attributable to the injured spouse) and 100% of any part of the refund that is attributable to the liable spouse's separate property. 100% of any joint management property (if any can be so characterized) would also be available. Assuming there was an intent to benefit the community by incurring the debt, 100% of the portion of the refund that is community property and all of the refund that is separate property of liable spouse. If there was no such intent, 50% of the community property portion of the refund and all of the refund that is the separate property of the liable spouse. With respect to post-determination date obligations, assuming the obligation is incurred in the interest of the marriage and family, 100% of the marital (community) property part of the refund and all of the refund that is individual (separate) property of the liable spouse. If the obligation is not incurred in the interest of the marriage and family, 50% of the marital (community) property portion of the refund and all of the refund that is the individual (separate) property of the liable spouse.


*Wisconsin law refers to community property as "marital" property and separate property as "individual" property.