Can New York State withhold a wife's share of a joint personal income tax refund and apply it against a sales tax assessment owed individually by her husband alone?

Plain-English summary

Phyllis Spielman filed a joint 1992 New York personal income tax return with her husband, Stanley Spielman, and the couple was entitled to a refund because of an overpayment of estimated tax. Instead of paying out the refund, New York State withheld the entire amount and applied it against a separate, individual assessment against Stanley alone: a $56,757.89 sales tax assessment tied to his interest in XII Arches Restaurant Corp. (The opinion notes that the corporation's sales tax obligation had actually been assumed by another company, with the State Tax Commission's knowledge, and was ultimately paid by yet a third company, G.M. Triple S. Corp., through a bankruptcy proceeding — but none of that changed the fact that Stanley, individually, had been personally assessed.) Phyllis asked whether the state could do this to her share of the refund.

The Department said no, as to her share. Tax Law § 686(a) lets the Commissioner credit an overpayment "against any liability ... on the person who made the overpayment" — language that ties an offset to the person who actually overpaid, not to that person's spouse. It's true that Tax Law § 651(b)(2) makes a married couple's income tax liability on a joint return "joint and several," but Tax Law § 607(a) instructs that Article 22 terms be interpreted the same way as the comparable federal provisions unless New York law clearly requires otherwise. The federal analogs — IRC § 6402(a) (crediting an overpayment against the person who made it) and IRC § 6013 (joint and several liability for joint filers) — have already been construed by the IRS (Rev. Rul. 74-611) and the courts (Maragon v. United States, 153 F. Supp. 365 (Ct. Cl. 1957)) to mean that spouses who file jointly do not have one shared interest in an overpayment; each spouse has her or his own separate interest in it. Carrying that same reading over to the parallel New York statutes, the Department concluded that the Commissioner may not credit the portion of a joint overpayment attributable to one spouse against a liability owed only by the other spouse.

The opinion also flags a separate, narrower mechanism: Tax Law § 651(b)(6) and 20 NYCRR § 151.10(f) let a non-liable spouse affirmatively demand that her share of a refund not be swept against the other spouse's past-due support, past-due legally enforceable debt, or a defaulted student/SUNY/CUNY loan. That demand-based "injured spouse" procedure is triggered only by those enumerated debt categories, and a sales tax assessment isn't one of them — so this case is governed instead by the more basic separate-interest rule under § 686(a). Either way, the regulation's two-step formula in § 151.10(f) — first computing each spouse's own separate New York tax liability as a share of the couple's combined New York adjusted gross income, then allocating the overpayment in that same proportion — is what the Department uses to figure out exactly how much of a joint refund is "hers" versus "his." Applying that formula here, New York may not apply the portion of the 1992 refund attributable to Phyllis against Stanley's individual sales tax liability.

What this means for you

Married couples filing a joint New York return where one spouse has a separate tax liability

If you file a joint New York income tax return and your spouse (but not you) owes a separate New York tax debt — such as an individual sales tax assessment tied to a business the other spouse was involved in — the state cannot simply seize the entire joint refund to satisfy that debt. Your proportionate share of the overpayment, calculated under the § 151.10(f) formula, is legally your own separate property for offset purposes, even though you filed jointly and even though income tax liability on a joint return is otherwise joint and several.

Accountants and tax professionals handling refund-offset disputes

If a client's joint refund gets swept against a spouse's individual liability, look first at what kind of debt is being offset. If it's the other spouse's own New York tax liability (income tax, sales tax, or any other tax administered by the Commissioner), the § 686(a) separate-interest rule applies automatically — there's no special demand required, but you'll need to use the § 151.10(f) formula (comparing each spouse's separate New York adjusted gross income to the couple's combined New York adjusted gross income) to calculate and document your client's protected share. If instead the debt is past-due support, a past-due legally enforceable debt, or a defaulted student/SUNY/CUNY loan, a different and narrower procedure applies under § 651(b)(6): the non-liable spouse must affirmatively demand, in the form the Commissioner prescribes, that her share not be applied against it.

Common questions

Q: Can New York apply a joint refund entirely against one spouse's separate tax debt?
A: No. Under Tax Law § 686(a), an overpayment may be credited only against a liability owed by "the person who made the overpayment." Where a couple files jointly, each spouse has a separate interest in the resulting overpayment, so only the debtor spouse's own proportionate share can be applied against that spouse's individual liability.

Q: Doesn't "joint and several liability" under Tax Law § 651(b)(2) mean either spouse's refund can be used to pay either spouse's debts?
A: No. Joint and several liability under § 651(b)(2) describes how the couple's income tax liability on their joint return is shared between them; it doesn't turn an overpayment into a single pooled asset available for either spouse's separate, non-joint tax debts. The Department read § 651(b)(2) alongside § 686(a) and concluded the two provisions serve different purposes.

Q: How is each spouse's share of a joint refund actually calculated?
A: Using the formula in 20 NYCRR § 151.10(f): first, each spouse's separate New York tax liability is computed as that spouse's share of the couple's combined New York adjusted gross income; then the overpayment (and any interest on it) is allocated between the spouses in that same proportion.

Q: Is this the same as the "injured spouse" relief for support or student loan debts?
A: Not exactly. Tax Law § 651(b)(6) and 20 NYCRR § 151.10(f) create a separate, narrower procedure specifically for past-due support, a past-due legally enforceable debt, or a defaulted guaranteed student/SUNY/CUNY loan — the non-liable spouse must affirmatively demand that her share not be applied against that debt. The general rule discussed in this opinion, protecting a spouse's share from the other spouse's separate tax liabilities under § 686(a), applies automatically without any such demand, because the sales tax assessment here wasn't one of the enumerated debt categories covered by § 651(b)(6).

Q: Does it matter that the underlying sales tax obligation was later assumed and paid by other companies?
A: No. The opinion notes that XII Arches Restaurant Corp.'s sales tax obligation was assumed by another corporation and ultimately paid by G.M. Triple S. Corp. through a bankruptcy proceeding, but that background didn't change the fact that Stanley Spielman had been personally, individually assessed. The refund-offset analysis turns on whose liability is being collected, not on the underlying history of the debt.

Q: Why does New York look to federal law (IRC §§ 6402(a) and 6013) to decide a state refund-offset question?
A: Tax Law § 607(a) directs that terms used in Article 22 be interpreted the same way as the comparable federal provisions unless New York law clearly requires a different meaning. Because Tax Law §§ 686(a) and 651(b)(2) closely parallel IRC §§ 6402(a) and 6013, the Department applied the same separate-interest conclusion the IRS reached in Rev. Rul. 74-611 and that courts reached in Maragon v. United States.

Citations and references

• Tax Law § 686(a) - Commissioner may credit an overpayment only against a liability owed by the person who made the overpayment
• Tax Law § 651(b)(2) - joint New York filers' tax liabilities are joint and several, except as provided in § 651(b)(5)-(6) and § 685(e)
• Tax Law § 651(b)(6) - lets a non-liable spouse demand that her share of a refund not be applied against the other spouse's past-due support, past-due legally enforceable debt, or defaulted student/SUNY/CUNY loan
• Tax Law § 607(a) - Article 22 terms are interpreted consistently with comparable federal income tax provisions unless a different meaning is clearly required
• Tax Law §§ 171-c, 171-d, 171-e, 171-f - authorize offsetting refunds against past-due support, past-due legally enforceable debts, and defaulted student/SUNY/CUNY loans
• 20 NYCRR § 151.10(f) - formula for determining the portion of a joint overpayment and interest attributable to each spouse
• IRC § 6402(a) - federal analog letting the Secretary credit an overpayment only against the person who made it
• IRC § 6013 - joint and several liability for spouses who file a joint federal return
• Rev. Rul. 74-611, 1974-2 C.B. 399 - IRS ruling that spouses filing jointly each have a separate interest in the jointly reported income and in any resulting overpayment
• Maragon v. United States, 153 F. Supp. 365 (Ct. Cl. 1957) - court decision holding that spouses filing jointly do not share a single joint interest in an overpayment; each has a separate interest

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a94_12i.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-94 (12) I
Income Tax
August 16, 1994

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I940517B

On May 17, 1994, a Petition for Advisory Opinion was received from Phyllis
Spielman, 69 Willets Road, Old Westbury, New York 11568.
The issue raised by Petitioner, Phyllis Spielman, is whether New York State
can withhold the refund due and owing to Petitioner for calendar year 1992 when
Petitioner filed a joint personal income tax return.
Petitioner filed a joint New York State personal income tax return with her
husband, Stanley Spielman, for calendar year 1992, in which they were entitled
to a refund by reason of an estimated tax payment made during the calendar year.
The refund due and owing was withheld by New York State and applied towards a
personal assessment of Stanley Spielman individually, arising out of his interest
in the XII Arches Restaurant Corp. New York State assessed Stanley Spielman,
personally, in the sum of $56,757.89, by reason of the claim of non-payment of
sales taxes. XII Arches Restaurant Corp.'s obligation for said sales taxes were
assumed by another corporation, with the knowledge and consent of the State Tax
Commission. Said sums were paid by the G.M. Triple S.Corp., through the United
States Bankruptcy Court as administrative expenses.
Section 686(a) of the Tax Law provides that the Commissioner of Taxation
and Finance, within the applicable period of limitations, may credit an
overpayment of income tax and interest on such overpayment against any liability
in respect of any tax imposed by the Tax Law on the person who made the
overpayment, against any liability in respect of any tax imposed pursuant to the
authority of the Tax Law or any other law on such person if such tax is
administered by the Commissioner of Taxation and Finance and, as provided in
sections 171-c, 171-d, 171-e and 171-f of the Tax Law, against past-due support,
a past-due legally enforceable debt, and against the amount of a default in
repayment of a guaranteed student, state university or city university loan. The
balance shall be refunded by the Comptroller.
Section 651(b)(2) of the Tax Law provides that if the Federal income tax
liabilities of husband and wife are determined on a joint Federal return, they
shall file a joint New York income tax return, and their tax liabilities shall
be joint and several except as provided in section 651(b)(5) and (6) of the Tax
Law and section 685(e) of the Tax Law.
Section 607(a) of the Tax Law provides that any term used in Article 22 of
the Tax Law shall have the same meaning as when used in a comparable context in
the laws of the United States relating to Federal income taxes, unless a
different meaning is clearly required.

TP-9 (9/88)

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Income Tax
August 16, 1994

Section 6402(a) of the Internal Revenue Code ("IRC") gives the Secretary
or his delegate authority to credit the amount of any overpayment including any
interest allowed thereon, against the liability in respect of an Internal Revenue
Tax on the part of the person who made the overpayment, and requires a refund of
the balance "to such person". Section 6013 of the IRC provides for the filing
of a joint return by a husband and wife and imposes joint and several liability
upon them for the tax computed on their aggregate income. In Rev Rul 74-611,
1974-2 CB 399, the Internal Revenue Service ruled that when a husband and wife
file a joint return each spouse has a separate interest in the jointly reported
income and a separate interest in any overpayment. Court decisions have
consistently held that a husband and wife who file a joint return do not have a
joint interest in an overpayment; each has a separate interest. See Maragon v
United States, 153 F Supp 365 (Ct. Cl. 1957).
Sections 6402(a) and 6013 of the IRC are similar to sections 686 and
651(b)(2) of the Tax Law. Pursuant to section 607 of the Tax Law, the phrase in
section 686 of the Tax Law "credit an overpayment of income tax and interest on
such overpayment against any liability in respect of any tax imposed by the Tax
Law on the person who made the overpayment" and the phrase in section 651(b)(2)
of the Tax Law "their tax liabilities shall be joint and several" should be
interpreted the same as under the IRC. Therefore, conclusions reached in Rev Rul
74-611, supra, should also apply to Article 22 of the Tax Law when a husband and
wife file a joint New York State personal income tax return.
Accordingly, under section 686 of the Tax Law, when a husband and wife file
a joint New York State personal income tax return, the Commissioner of Taxation
and Finance may not credit an overpayment of income tax and interest on such
overpayment of one spouse against any liability in respect of any tax imposed by
the Tax Law owed by the other spouse.
Section 651(b)(6) of the Tax Law and section 151.10(f) of the Personal
Income Tax Regulations ("Regulations"), promulgated thereunder, provide that if
a husband and wife file a joint New York State personal income tax return, any
excess payment and interest thereon by either spouse may be applied against any
past-due support, or a past-due legally enforceable debt, or against any amount
of a default in repayment of a guaranteed student, state university or city
university loan attributable to the other spouse, of which the Department of
Taxation and Finance has been notified pursuant to the provisions of sections
171-c, 171-d, 171-e, or 171-f of the Tax Law. However, the spouse not liable for
such past-due support, or a past-due legally enforceable debt, or any amount of
a default in repayment of a guaranteed student, state university or city
university loan may demand, on a declaration made in accordance with regulations
or instructions prescribed by the Commissioner of Taxation and Finance, that the
portion of the overpayment and interest attributable to such spouse not be
credited against such amount owed by the other spouse.
Section 151.10(f) of the Regulations provides the method for determining
the portion of the overpayment and interest attributable to each spouse for
determining the amount of excess payment and interest thereon which may be
applied against past-due support or against a default in repayment of a
guaranteed student, State University or city university loan of a spouse as
follows:

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[i]f a spouse makes a demand that any overpayment made by him or her
be applied only on account of his or her separate liability, then:
(1) amounts attributable to withholding from wages of such
spouse will be applied only against the separate liability of such
spouse;
(2) amounts attributable to separate payments of estimated
income tax by such spouse will be applied only against the separate
New York State personal income tax liability of such spouse; and
(3) amounts attributable to joint payments of estimated income
tax andamounts attributable to any other payment will be applied
against the separate New York State personal income tax liability of
each spouse in such proportion as is agreed upon by both spouses;
provided, however, that in the absence of any such agreement, such
amounts will be applied against the separate New York State personal
income tax liability of each spouse in the same proportion which the
separate New York State personal income tax liability of each spouse
bears to the total New York State personal income tax liability of
both spouses. In the absence of an agreement between spouses, the
amounts of joint estimated income tax payments and other payments
will be apportioned based upon the following formula:
separate New York State personal income
tax liability of spouse
total New York State personal income tax X
liability of both spouses

amount of estimated income tax
payments

For purposes of this subdivision, the separate New York State personal
income tax liability of each spouse will be determined by the following
formula:
New York adjusted gross income of each

spouse
combined New York adjusted gross income X
of both spouses
spouses

total New York State personal
income tax liability of both

The method of determining the amount of joint estimated income tax payments
attributable to each spouse and the separate New York State personal income tax
liability of each spouse under section 151.10(f) of the Regulations should also
apply for purposes of determining the amount of overpayment and the interest on
such overpayment attributable to each spouse under section 686 of the Tax Law.
Herein, Petitioner filed a joint New York State personal income tax return
with her husband for taxable year 1992. Pursuant to section 686 of the Tax Law,
the portion of any overpayment of income tax and the interest on such overpayment

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attributable to Petitioner, as determined pursuant to section 151.10(f) of the
Regulations, may not be credited against any liability in respect of any tax
imposed by the Tax Law on her husband.

DATED: August 16, 1994

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.