Rev. Rul. 80-6

1980-1 C.B. 296, 1980-1 I.R.B. 16.

                       Internal Revenue Service
                                 Revenue Ruling

           JOINT RETURN; NET OPERATING LOSS FOR SEPARATE RETURN YEAR

                           Published: January 7, 1980

26 CFR 301.6402-1: Authority to make credits or refunds.

  Joint return; net operating loss for separate return year. The proper method is provided for computing the amount to be refunded to an unmarried taxpayer who incurred a net operating loss that was carried back or carried over to a year in which the taxpayer was married and filed a joint return; Rev. Rul. 75- 368 modified.

ISSUE

  What is the proper method of determining the amount of a spouse's individual refund, if the spouse incurs a net operating loss in a separate return year that is carried back or carried over to a year in which a joint return was filed?

FACTS

  The taxpayer and spouse were divorced in 1969. Prior to their divorce, they had always filed joint income tax returns.  In 1970, the taxpayer filed a return as an unmarried individual.  During that year, the taxpayer sustained a net operating loss.  In 1973, the taxpayer remarried and filed a joint tax return.  In 1973, the taxpayer filed claims for refund of taxes paid in 1967, 1968 and 1971.

LAW AND ANALYSIS

  In Rev. Rul. 75-368, 1975-2 C.B. 480, which is based on the same set of facts, the penultimate paragraph states:

    In the instant case, the net operating loss occurred in 1970, when the taxpayer filed his return as an unmarried individual.  The net operating loss deduction for 1967, 1968, and 1971 will be carried back and carried over only to the taxpayer's portion of the income shown on his joint returns.  The joint tax rates will be applied to the reduced taxable income.  The amount of the taxpayer's overpayment on each return will be the excess of the tax paid on these returns over the recomputed tax for that return, limited to the amount of the tax actually paid by the taxpayer that is attributable to his portion of the taxable income originally reported on the return.

  The method of calculating the taxpayer's individual refund in Rev. Rul. 75- 368 is inconsistent with the method employed in Rev. Rul. 80-7 for determining a spouse's individual interest in an overpayment, if both spouses file a joint return.  In order to be

consistent with Rev. Rul. 80-7, the Internal Revenue Service will apply the separate tax method of allocation in order to determine a spouse's individual refund, if a separate net operating loss is carried back or carried over to a joint return year.

  In Rev. Rul. 67-431, 1967-2 C.B. 411, the Service stated that the taxpayer may carry back an investment tax credit attributable to investments made by the taxpayer that was reported on a joint return filed by the taxpayer and his second wife to that portion of the tax attributable to him on a joint return filed by the taxpayer and his first wife.  The Service stated that the refund with respect to the joint return filed by the taxpayer and his first wife will be made to the taxpayer because the Service has no knowledge of circumstances indicating that taxes were paid by anyone other than the taxpayer.  Rev. Rul. 80-7 amplifies Rev. Rul. 67-431 by providing the method for determining the amount of the joint taxes attributable to the taxpayer and by providing a method for determining the amount to be refunded to the taxpayer.

HOLDING

  The penultimate paragraph of Rev. Rul. 75-368 is modified to state as follows:

    In the instant case, the net operating loss occurred in 1970, when the taxpayer filed a return as an unmarried individual.  The net operating loss deduction will be carried back and carried over only to the income that would have been reported by the taxpayer, if a separate return would have been filed.  The joint rates will be applied to the reduced joint taxable income. The amount of the taxpayer's individual refund will be calculated by determining the taxpayer's recomputed share of the joint liability according to the separate tax formula:

    taxpayer' recomputed separate tax liability/both spouses' recomputed separate tax liability x recomputed joint tax liability

  and subtracting that amount from the taxpayer's contribution determined in accordance with Rev. Rul. 80-7.  The amount of the overpayment refunded to the taxpayer will be limited to the amount of the joint overpayment.  In computing each taxpayer's separate tax liability, the tax rates for married individuals filing separate returns should be used.  See section 1(d) of the Code for such

rates.

  Rev. Rul. 75-368 is modified.

Rev. Rul. 80-6, 1980-1 C.B. 296, 1980-1 I.R.B. 16.