By: A.J. Cook


Geraldine Bell received a strange phone call from William, her estranged husband. He said if she didn't immediately pay the Internal Revenue Service $10,000, he would kill her.

Mrs. Bell rushed to the bank. She took $10,000 from her two children's accounts, she held as guardian, and mailed the money to the IRS. Then she got a restraining order protecting her from William and filed for divorce.

At tax time, Mrs. Bell met with an IRS employee for assistance in preparing her return. He told her to take credit for the full $10,000 estimated payment.  Based on this payment and her withholdings, the agency sent her a $13,928 refund.

When William also claimed the $10,000 on his return, the IRS noticed the double-dipping. It demanded $10,140 from Mrs. Bell. A few weeks later it sent her another letter saying, instead, she owed $12,804. Then a third, now she owed $1,716. Finally, a fourth letter put the amount at $10,424.

When the IRS didn't receive payment, it slapped a lien on her home for $1,699 -- the amount of her taxes without considering the $10,000 or withholding tax. Her father paid $2,101 for taxes and interest to release the lien.

While all this was going on, the couple divorced and William fell behind on child support payments.  When a state court ordered his wages paid directly to his ex-wife, the IRS pounced on this to sidetrack the money.

To recover the erroneous refund, the IRS sued Mrs. Bell.  For all downtrodden Americans, this proved to be a weatherbell case.

The agency said she shouldn't have received credit for the full $10,000. It cited tax regulations saying when a divorced couple pay an estimate while married, the agency should apply it to each based on that person's relative tax liability.  Because Mrs. Bell's taxes were much lower than her ex-husband's, she got a credit for only $1,283. In short, William got credit for most of the $10,000.

The court said the IRS was wrong; this case is not about applying estimated payments.  The agency sued to recover an errouneous refund, so tax regulations don't apply. Instead, the court looked at what is equitable. On this basis, the judge ruled for Mrs. Bell, noting these two facts:

• Although the $10,000 payment was made by her in her name and her husband's, it was her children's money paid under threats of violence.
• When William fell behind on support payments, she filled out forms so the IRS would pay his refunds to her. So any refund should go to her for her children.
  

The court said, considering justice and fairness, Mrs. Bell could keep the refund and the IRS must return the $2,101 her father paid to release the home lien.

In an unusual case footnote, the judge consoled the IRS lawyer. Even though the government lost, the magistrate explained, he intended no "disparagement" of its attorney, who served in a fair and evenhanded manner.

The judge considered the comment appropriate.  The lawyer lost to a mother caring for the two young children and working as a City Hall custodian, who trounced him in court without legal assistance.

The Moral: The government doesn't lose when justice prevails.

A.J. Cook is a lawyer and CPA. His tax column appears weekly in numerous newspapers.  Why isn't it published in your hometown newspaper? Ask its Business Editor to subscribe.

Copyright © 1987-2001 A.J. Cook All Rights Reserved
This information is not intended for use without professional advise.
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Released 9-12-94 and 1-30-95