If you didn’t receive your Economic Impact Payments (EIPs) and a 2018 or 2019 joint return was filed in your name without your consent, you may be eligible to claim the Recovery Rebate Credit (RRC) on your 2020 tax return. Since the issuance of the first round of EIP, our office has been working with the IRS Office of Chief Counsel and the IRS to establish procedures to help a victim of domestic violence where their spouse filed a joint return without the victim’s consent, and kept the EIP that was based on that joint return. On November 16, 2020, the IRS updated its procedures specific to EIP when a joint return election is invalid, and therefore there is an invalid return as to one of the spouses.
Economic Impact Payments
The IRS issued EIPs by looking at taxpayers’ recent federal income tax returns, either 2018 or 2019 for the first round of EIP, and 2019 for the second round. But what if the EIP was based on a return with married filing jointly filing status that was not valid? What if one spouse signed a married filing joint return under duress? What if one spouse never intended to file a joint return and the other spouse forged his or her signature? What if the individuals were not legally married? These are just some of the questions that may point to a conclusion that the joint election was invalid, and the return was invalid as to the victim; it’s an issue that often comes up with victims of domestic violence. When the IRS concludes that a joint election was invalid, the IRS follows Internal Revenue Manual (IRM) procedures, found in IRM 126.96.36.199.7, for changing the taxpayers’ accounts from “married filing jointly” status to single, married filing separately, or head of household.
Over the past ten months we have learned of many situations in which one spouse coerced the other spouse to sign a return under duress, forged a signature, or filed a joint return by fraudulent means and kept the refund or EIP from the other spouse. If the individual can establish that the joint election was invalid, the individual may be able to claim the RRC on the 2020 tax return for any EIPs they were issued but did not receive.
The IRM is the primary and official source of instructions to employees relating to the organization, administration, and operation of the IRS. The IRM contains directions for employees to carry out their responsibilities and meet their obligations. Part 21 of the IRM guides changes made to filing status, exemptions, and dependents after a tax return has been filed. It assists IRS employees in evaluating each situation and deciding whether to adjust a taxpayer’s filing status and/or exemptions or dependents.
The procedures found in IRM 188.8.131.52.7 provide guidance when a spouse claims a joint election was invalid, and provide instructions for changing the taxpayers’ accounts from an invalid “married filing jointly” status. IRM 184.108.40.206.7 was updated on November 16, 2020, and again on January 19, 2021, to include procedures specific to EIP. Neither update is yet reflected in the public version of the IRM, so I will describe the procedures here and reproduce the revised IRM at the end of this blog.
For this discussion, I refer to the taxpayer who is claiming the election was invalid as the claimant.
Under the IRM procedures, the IRS can adjust the account once the claimant succeeds in providing the information and documentation to support the claim that the return was signed under duress, forged, or fraudulent or the filers were not legally married. If the IRS concludes that an EIP was issued based on an invalid joint election and someone kept the EIP from the claimant, the IRS will adjust the accounts of both spouses by attributing the full amount of EIP that was issued based on that joint return to the non-claimant. By doing this, the claimant’s IRS account will no longer reflect receipt of the EIP and then the IRS will allow the claimant the RRC on their 2020 tax return.
How do taxpayers support the allegations of an invalid joint election?
The revised IRM procedures require that the claimant provide written documentation providing support for the position that the prior joint election was invalid before the IRS will consider the claimant’s request. The claimant can produce a separate return for the prior year if the claimant has a filing requirement or a statement signed and sworn under penalties of perjury that the claimant didn’t need to file a tax return for the prior year. Remember that taxpayers who file returns as married filing separately have a filing requirement if their gross income is at least $5 (IRS Publication 501, Dependents, Standard Deduction, and Filing Information). Whether or not the claimant is required to file a separate return, the claimant can submit a sworn statement to the IRS supporting the claim that the joint election on the prior return was invalid.
The revised IRM does not specify how or when to submit documentation in support of the claim. However, the claim is not a request for innocent spouse relief (although a claim for innocent spouse relief may also be appropriate), so the procedures do not require submission of Form 8857, Request for Innocent Spouse Relief, and there is no requirement that the IRS notify the non-claiming spouse before it acts on the claim.
One likely scenario that could occur is if the claimant claims the RRC on a 2020 return based on the EIP amounts the claimant received (which may be zero). The IRS’s records may reflect one or both rounds of EIP were issued and paid to the claimant based on information from a joint return from 2018 or 2019. In this scenario, the IRS will process the 2020 return but will hold the claimed RRC amount and issue a math error notice explaining that the credit was already issued as an EIP. The claimant must respond to the math error notice within 60 days and work with the IRS in providing support for the position that the prior year joint election was invalid. The claimant should not ignore the math error notice, as the IRS will not restore the RRC if the claimant fails to respond.
The claimant will need to establish the existence of duress or forgery or that the claimant was not legally married at the end of the 2018 or 2019 year on which the EIP was based. To show the return was signed under duress, the claimant must show they could not resist their spouse’s demands and that they would not have signed but for such constraint on their will. Indications of coercion might include: (1) physical, sexual or emotional abuse; (2) financial exploitation; (3) threatened or actual harm to children; (4) threat of separation from the children; (5) threats related to immigration status; (6) isolation from family and friends; (7) surveillance; (8) shaming; and (9) control over access to necessities.
The recent IRM procedural update is a positive step for taxpayers, especially for victims of domestic violence, who can establish a joint return was filed without their consent and thereby receive the RRC for any EIPs they did not receive. I urge taxpayers and representatives to review the IRM included with this post for guidance. Unfortunately, the IRM does not provide procedures for allowing an RRC where both spouses consented to the joint return (and therefore the return itself is valid for both spouses), but one taxpayer withheld the EIP from the other. I will continue to address this issue with the IRS, hoping to provide some relief to the many victims of domestic violence.
Tax return preparation assistance: Invalidating a joint election is complex and it is important for taxpayers to understand the recent change impacting the EIP and RRC. Eligible taxpayers should consider contacting the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs for free income tax preparation assistance for their 2019 and 2020 tax returns and for guidance on invalid joint elections. VITA offers free basic tax return preparation to people who generally make $57,000 or less, persons with disabilities, and taxpayers with limited English proficiency, while TCE provides tax assistance to taxpayers age 60 or older.
IRM 220.127.116.11.7, Married Filing Joint or Married Filing Separate is Invalid or Filed with Incorrect Status
- The married filing joint election is potentially invalid if the individuals were not legally married, did not consent to the joint return, or if the return contains a forged signature.
- NOTE: When speaking to the taxpayer on a Toll-free line, you realize the taxpayer’s request requires written documentation/substantiation, refer to IRM 18.104.22.168.3(5), Adjustments Requiring An Amended Return or Taxpayer Documentation. Filing Status adjustments for invalid returns or forged signatures are not allowed under Oral Statement Authority. Written documentation, such as a corrected return, if the taxpayer has a filing requirement, or a statement signed and sworn under penalty of perjury is required.
- Allow claims if the marriage was not legal for federal tax purposes (even if the claim is received after the due date) if the following is present:
- Verification, such as court documents showing the marriage was not valid for the tax period involved: copy of divorce decree or separate maintenance; documents verifying that the taxpayers did not live together during the last six months of the tax year, such as a lease agreement, utility bills, etc.; or an affidavit, signed and sworn under penalty of perjury, stating the marriage does not exist.
- Allocation of all return income, credits, and payments, refer to IRM 22.214.171.124.8, Allocating Married Filing Joint Cases.IFTHENAll information is not present and the only change is to the filing status which includes allocation of income, credits and paymentsDo not consider the filing status change, follow procedures in IRM 126.96.36.199.6.3, No Consideration Procedures.All information above is not present and additional changes are requestedDo not consider the filing status change. For the married filing joint account, determine if the other issues are allowable and follow IRM 188.8.131.52, General Claims Procedures, for applicable procedures.All information above is presentAllow filing status change, follow procedures in IRM 184.108.40.206.5.1, Allowable Claims Procedures.REMINDER: Correspondence should only be sent to the taxpayer filing the claim.
- When one spouse on a married filing joint return claims they did not consent to the joint filing, or their signature was forged, refer the claim to Exam for deficiency procedures. Refer to IRM 220.127.116.11, Correspondence Imaging System (CIS) Procedures. ONLY refer claims to Exam when the additional assessment (net tax increase/credit decrease) is at least ***and the assessment statute expiration date (ASED) has at least *** remaining. The net tax increase/credit decrease does not include withholding. Do not send tax decreases or credit increases to Exam, Accounts Management (AM) has the authority to work these cases. If the claim does not meet Exam criteria above, follow the If/Then chart below:
IFTHENThe Primary taxpayer is alleging forgery,
- Follow procedures in IRM 18.104.22.168.23, Reprocessing Returns/Documents. Do not prepare a “dummy” return. Do not attempt to “net out” any refund; move any refund resulting from the joint return to the secondary account.
- When the document is received, edit the MFJ return by removing the primary taxpayer’s name, Taxpayer Identifying Number (TIN) and changing the filing status from MFJ to Married Filing Separate.
- If the primary taxpayer has filed a new return, adjust the primary account, using BS 00, to reflect the new return, this includes filing status, AGI, TXI, Tax and any allowable credits reported on the new return.
- Remove the secondary taxpayer’s name and TIN from the primary account for the TY in question.
- Remove the secondary taxpayer’s name and TIN from the entity account for the tax period in question.
- Adjust the primary account by changing the filing status for the tax year of the return.
- If your case includes the original return for the secondary taxpayer, follow procedures in IRM 22.214.171.124.5, Processing/Reprocessing CIS Tax Returns.
- If an Economic Impact Payment (EIP) refund was issued from the primary account and the secondary taxpayer is claiming that the return is invalid.
- On the primary account:
- Reverse the original EIP adjustment using the codes on IMFOLA.
- Input a second EIP adjustment with a PDC 1, using RC 000/000/215, so that the full amount is attributed to the primary taxpayer.
- On the secondary account:
IFTHENThe taxpayer did not file a 2019 or 2018 returnNo action. The taxpayer can claim the Recovery Rebate Credit on the 2020 return.The taxpayer filed a 2019 or 2018 return and EIP was generatedNo action. If the payment issued was less than the taxpayer was entitled to, the taxpayer can claim the Recovery Rebate Credit on the 2020 return.The taxpayer filed a 2019 or 2018 return and EIP was not generatedCompute the amount of EIP following IRM 126.96.36.199.2.13, Economic Impact Payments, and input the EIP adjustment on the tax year 2020 module, following IRM 188.8.131.52.2.13.1, Economic Impact Payments – Account Information.NOTE: Insure [sic] complete adjustments on these accounts by using Hold Codes, etc., as needed.
- On the primary account:
- If an EIP refund was issued from the primary account, the primary taxpayer is claiming that the return was invalid and the secondary taxpayer received and kept the entire EIP refund,On the primary account:
- Reverse the original EIP adjustment using the codes on IMFOLA.
- Input a second EIP adjustment with a PDC 1, using RC 000/000/216, so that the full amount is attributed to the secondary taxpayer.
- Input a third EIP adjustment with a PDC 2, using RC 001/000/215, CRN 338 $1,200.00, so that a refund is issued to the primary taxpayer for their amount only.
NOTE: Insure[sic] complete adjustments on these accounts by using Hold Codes, etc., as needed.
- If the change from married filing separate to single is due to a clerical error and does not result in a change to tax, credits, etc., allow the change.Have a question? Contact National Taxpayer Advocate.