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District Court rules wife's refund applies to husband's past-due child support.

In Oatman, 814 F Supp 912 (DC Id. 1993), a Federal District Court recently rejected a refund suit by Emily Oatman filed when the IRS had intercepted the refund from the Oatmans' jointly filed 1990 tax return and applied it to past-due child support for her husband's children from a previous marriage.

In 1981, Congress enacted Sec. 6402(c), under which the Service can reduce any Federal tax refund by the amount of past-due child support owed by a taxpayer. In 1984, Congress added Sec. 6402(e), which specifies that no Federal court shall hear any suit brought under Sec. 6402(c); the taxpayer's only recourse is to sue the state social service agency that claimed the refund. The purpose of Sec. 6402(e) is to relieve the IRS from litigating the substantive merits of the debt. Applying Sec. 6402(c) and (e), the court in Oatman held that it did not have jurisdiction to hear Emily Oatman's suit for her half of the refund.

Emily Oatman claimed that the interception of the refund was contrary to an earlier U.S. Supreme Court case, violated Idaho law and was unconstitutional. The District Court pointed out that the Supreme Court's decision occurred before enactment of Sec. 6402(e). Emily Oatman also cited an Idaho statute that limits the refund offset to one-half of the refund on a joint return when only one of the spouses is obligated to pay the child support. However, the court found that this statute applied only to the idaho state tax commission; therefore, it did not prevent the interception of a Federal tax refund by the Service. Also, the court held that the IRS had properly applied Idaho law allowing community property to be used to satisfy any premarital or other separate debts of either spouse.

The District Court did not comment on the constitutionality issue. However, in another Sec. 6402(e) case, Richardson v. Baker, 663 F Supp 651 (DC N.Y. 1987), a Federal District Court ruled that a statute need only provide some adequate forum for judicial review to be constitutional. Therefore, Sec. 6402(e) was constitutional, since it allowed legal challenges against the agency to which the refund was forwarded on behalf of the children. Of course, this ruling did not meet Emily Oatman's objection that she was unconstitutionally deprived of her half of the refund, since it is unlikely that the idaho Bureau of Child Support Enforcement would respond favorably to her constitutional argument. It would simply determine whether Mr. Oatman was in arrears on his child support payments; if he was, it would apply the entire refund toward the arrearage.

For taxpayers not current with their child support payments (or any Federal obligation, such as student loans), the IRS is required to intercept the refund and forward it to the state social service agency that administers child support. Consequently, spouses of such delinguent taxpayers will also find their share of a joint return refund intercepted even though not a parent of the child. (This is true whether or not the state is a community property state.) The spouse can avoid this outcome only by living in a state that does not allow a spouse's assets to be used to satisfy the other spouse's separate debts. From Peter C. Barton, J.D., MBA, CPA, and Clayton R. Sager, Ph.D., Associate Professors of Accounting, University of Wisconsin-Whitewater, Whitewater, Wisc.
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Author:Sager, Clayton R.
Publication:The Tax Adviser
Date:Sep 1, 1993
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