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Eighth Circuit: Tax Return Filed with Head-of-Household Status Is Not a "Separate Return".

(Parker Tax Publishing June 29, 2015)

Reversing the Tax Court, the Eighth Circuit held that references in the Code to "separate returns" exclusively refer to the "married filing separately" status. Thus, a taxpayer who had incorrectly filed using the head-of-household status was not barred under Code Sec. 6013(b) from changing his status to "married filing jointly." Ibrahim v. Comm'r, 2015 PTC 190 (8th Cir. 2015).

Background

Isaak Abdi Ibrahim and his wife are U.S. immigrants from Somalia who speak very limited English. In 2011, a tax preparation service whose employees spoke Somali, prepared separate returns for the couple. Ibrahim claimed head-of-household status on his return, and his wife claimed single status on hers, despite the fact that they were married at the close of the tax year.

The IRS determined that Ibrahim's correct filing status for 2011 was "married filing separately," rather than head-of-household, and issued a notice of deficiency.

Ibrahim filed a petition with the Tax Court, seeking to change his status to "married filing jointly" to receive a credit and refund. The IRS argued that the taxpayer could not change his status because Code Sec. 6013(b) prohibits joint returns after a taxpayer has filed a "separate return," received a deficiency notice, and filed a petition with the Tax Court. Ibrahim argued that Code Sec. 6013(b) was inapplicable because the Fifth Circuit had held that "separate returns" exclusively refers to returns under the "married filing separately" status. The Court noted that it was bound by the precedent of the Court of Appeals to which an appeal of the case would lie, but pointed out that an appeal would go to the Eighth Circuit, and thus was not bound by the Fifth Circuit decision. Following its own precedent instead, the Tax Court found that head-of-household returns are separate returns, and ruled Ibrahim was prohibited from filing jointly.

Eighth Circuit Interprets "Separate Return" in Code Section 6013 to mean "Married Filing Separately"

Code Sec. 6013(b)(1) states, subject to certain exceptions, if an individual has filed a separate return for a tax year for which a joint return could have been made by him and his spouse, and the time prescribed by law for filing the return for such taxable year has expired, such individual and his spouse may nevertheless make a joint return for such tax year. One exception bars a joint return for a married taxpayer who initially filed a separate return if either spouse receives a notice of deficiency and files a petition with the Tax Court (Code Sec. 6013(b)(2)(B)).

Before the circuit court, the IRS argued that a "separate return" is any return except a joint return, relying on Revenue Ruling 83-183.

The Eighth Circuit noted that Rev. Rul. 83-183 interpreted the reference in Code Sec. 6013(b) to the prior filing of a separate return as a reference to any non-joint return (including head-of-household). The court determined the revenue ruling's interpretation unreasonably included head-of-household returns (which consider taxpayers not married) as separate returns in Code Sec 6013, which applies to married taxpayers.

The IRS also argued that "separate return" could not mean only "married filing separately" because when Code Sec. 6013 was enacted in 1951, "married filing separately" status did not exist. The court determined this was factually incorrect, because Form 1040 for 1951 lists "married person filing separately" in its tax table (with the same rate as single taxpayers).

The Eighth Circuit stated that because Code Sec. 6013 does not define "separate return," and viewed alone, the section is ambiguous, it would need to consider the Code as a whole to interpret the meaning of "separate return." Citing Comm'r v. Lundy, 516 U.S. 235 (1996), the Eighth Circuit noted that the normal rule of statutory construction is that identical words used in different parts of a statute are intended to have the same meaning.

The Eighth Circuit found that "separate return" appears numerous times throughout the Code and IRS publications. In a 7-page Appendix the court listed 28 instances in which the IRS uses this term to refer exclusively to married taxpayers including several examples expressly differentiating "head-of-household" and "married filing separately." Some instances noted in the opinion are:

In the subheading of Code Sec 1(d), "Married individuals filing separate returns," "separate returns" means "married filing separately."

Code Sec. 6654(d)(1)(C)(ii), titled "Separate returns," applies only in the case of a married individual (within the meaning of Code Sec. 7703) who files a separate return.

"Separate return" in Code Sec. 7703(b) refers to a "married filing separately" return made by a taxpayer who is considered married.

According to IRS Pub. 501, "Exemptions, Standard Deduction, and Filing Information," head-of-household taxpayers are considered "not married," and may not make joint or separate returns.

Code Sec. 6012(a)(1)(A) expressly distinguishes a "separate return" from the enumerated statuses, providing that a spouse who makes a "separate return" is not entitled to a special exemption amount.

Even where the Code does not expressly state only married individuals can file a separate return, the Eighth Circuit observed that the IRS has issued guidance that "separate return" means "married filing separately." For example, Code Sec. 6015(d)(3)(a) (relief from joint and several liability) addresses allocations to innocent spouses as if the individuals had filed separate returns and the Internal Revenue Manual uses "married filing separate" to explain the allocation in Code Sec. 6015(d)(3)(a).

Because the Code and IRS guidance consistently use the term "separate return" exclusively to mean "married filing separately," the Eighth Circuit determined that "separate return" means "married filing separately" in Code Sec. 6013(b)(1).

Since Ibrahim did not file a separate return within the meaning of Code Sec. 6013(b)(1), the Eighth Circuit held that Code Sec. 6013(b)(2)(B) did not prohibit him from amending his status to "married filing jointly" and thus he was entitled to the resulting credit and refund.

For a discussion on filing status, see Parker Tax ¶10,500. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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