Towe v. Dept. of Rev.

FINAL DECISION TC-MD 160241N 1
IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
KEITH E. TOWE and TAMARAH L. TOWE, )
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Plaintiffs, TC-MD 160241N
v.
DEPARTMENT OF REVENUE,
State of Oregon,
FINAL DECISION1
Defendant.
Plaintiffs appeal Defendant’s Notice of Refund Offset (Notice), dated March 28, 2016,
notifying Plaintiffs that their 2015 personal income tax refund was offset to pay a debt to the
U.S. Department of Education. (Compl at 3.) Defendant filed its Motion for Summary
Judgment (Motion) on July 5, 2016. During the case management conference, held on July 21,
2016, the parties agreed to submit this matter to the court on written briefings. Plaintiffs filed
their response to Defendant’s Motion (Response) on August 11, 2016. Defendant filed its Reply
to Plaintiff’s Response (Reply) on August 15, 2016. This matter is now ready for decision.
I. STATEMENT OF FACTS
For the 2015 tax year, Plaintiffs Keith Towe (Keith) and Tamarah Towe (Tamarah)2 filed
a joint Oregon personal income tax return. (See Def’s Mot at 2, (citing Cridge Decl at 1, ¶3: Ex
B).) Their 2015 Oregon income tax return claimed refund of $854. (See Id.; see also Compl at
2.) Defendant did not audit or adjust Plaintiffs’ 2015 Oregon income tax return. (Def’s Mot at
1 This Final Decision incorporates without change the court’s Decision, entered January 30, 2017.
Plaintiffs requested costs and disbursements, in the amount of the $252 filing fee, in their Complaint. See Tax Court
Rule–Magistrate Division (TCR-MD) 16 C(1). The court did not receive an objection to that request within 14 days
after its Decision was entered. See TCR-MD 16 C(2).
2 Although it is customary to refer to parties by their surnames, this Decision references each Plaintiff by
first name to avoid confusion.

FINAL DECISION TC-MD 160241N 2
2, (citing Cridge Decl at 1, ¶4).) On March 28, 2016, Defendant issued a Notice to Plaintiffs
stating the refund was used to pay a debt to the U.S. Department of Education. (Compl at 3-4;
Def’s Ex B.) Under the heading “How to request your share of a joint refund,” the Notice stated
in part,
“If you are not responsible for the accounts listed in this notice because they are
not your debt, you have 30 days to ask the Department of Revenue to divide the
refund. We cannot divide your refund if the refund was used to pay a Writ or
Notice of Garnishment, a Bankruptcy Levy, an Internal Revenue Service Levy, or
a Federal Debt.”
(Id.) The Notice further stated that, even if the taxpayer did not ask Defendant to divide the
refund within 30 days, the taxpayer could still appeal to the Magistrate Division of the Oregon
Tax Court within 90 days from the date of the Notice. (Id.) Plaintiffs filed their Complaint in
the Magistrate Division on June 16, 2016, requesting that Keith receive his separate 2015 Oregon
income tax refund.
Plaintiffs maintain that Keith is entitled to 100 percent of the 2015 Oregon income tax
refund claimed on their joint return because “[a]ll income on 2015 Tax Return was that of Keith
E. Towe.” (Compl at 2.) Plaintiffs provided a copy of Keith’s Injured Spouse form to Defendant
with their 2015 Oregon income tax return. (Id.; see also Ptf’s Resp at 1.) Plaintiffs assert that
Tamarah “has not worked since 1990, she incurred this debt in 1984[,]” and Plaintiffs married in
1991. (Ptf’s Resp at 1.) “Since 2001, [Keith has] received 100% of [his] federal tax return due
to the collection laws and guidelines for federal offset.” (Id.) Defendant has “honored [Keith’s]
injured spouse claim for the last 14 years.” (Compl at 2.)
In 2015, Defendant entered into a reciprocal agreement with the U.S. Department of
Treasury “to facilitate the offset of state payments to pay federal debts and vice versa.” (Def’s
Mot at 2, (citing Cridge Decl at 1, ¶¶1-2; Ex A).) The agreement states, in part, that “[t]he offset

FINAL DECISION TC-MD 160241N 3
of the State payments to collect delinquent Federal nontax debts shall be conducted in
accordance with 31 CFR § 285.6 and [ORS] § 305.612.” (Def’s Ex A at 5.) The agreement
provides that,
“[i]f, after the State reduces a payment to satisfy an offset, the State determines
that the debtor was never entitled to the payment, the State could net the amount
to the collection cycle in which the reversal occurs or elect to have Fiscal Service
deposit the reversal amount into its designated bank account via electronic funds
transfer (EFT).”
(Id. at 6.) By its terms, the agreement is not “intended to conflict with Federal law or Oregon
state law” and “Oregon is not required to take any action inconsistent with state law.” (Id. at 7.)
II. ANALYSIS
The ultimate issue presented is whether Keith is entitled to the refund claimed on
Plaintiffs’ joint 2015 Oregon income tax return. Defendant disputes the court’s jurisdiction over
Plaintiffs’ claim. (See Def’s Mot at 3.)
The issues raised in this case are similar to those raised in Xuejun J. Smith v. Department
of Revenue, TC–MD 160196N, decided this day. As held in Smith, this court has jurisdiction
over cases arising out of Defendant’s obligation under ORS 314.415(1) to refund excess tax
paid.3 Furthermore, a taxpayer filing a joint return has a separate property interest in his or her
share of a joint tax refund. Defendant owes each joint filer a refund of his or her excess tax paid,
even though no allocation is made where neither spouse requests one. See e.g. Smith. ORS
314.415(7) empowers Defendant to make separate refunds upon request.
Here, as in Smith, one taxpayer filing a joint return — Keith — earned 100 percent of the
income reported on the 2015 Oregon income tax return and timely requested his separate refund
by filing a copy of his Injured Spouse form with the return. Therefore, Keith was entitled to a
3 The court’s references to the Oregon Revised Statutes (ORS) are to 2015.

FINAL DECISION TC-MD 160241N 4
separate 2015 Oregon income tax refund. Notwithstanding Keith’s request for a separate Oregon
income tax refund, Defendant offset the refund to pay Tamarah’s federal student loan debt.
Defendant maintained it was obligated to offset Plaintiffs’ refund pursuant to its reciprocal
agreement with the U.S. Department of the Treasury and to 31 CFR section 285.6(k)(1)(i). (See
Def’s Mot at 4-5.) As the court concluded in Smith, the refund was not owed jointly to both
plaintiffs; the refund at issue here was due solely to Keith. As a result, the agreement and the
federal regulation do not apply. Defendant erroneously offset Keith’s 2015 Oregon income tax
refund to pay Tamarah’s debt.4 Tamarah was never entitled to the refund shown on Plaintiffs’
joint 2015 Oregon income tax return.
III. CONCLUSION
Upon careful consideration, the court concludes that Keith was entitled to 100 percent of
Plaintiffs’ claimed 2015 Oregon income tax refund. Keith’s refund was not subject to offset
under Defendant’s reciprocal agreement with the U.S. Treasury Department. Now, therefore,
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4 The outcome here might be different if Plaintiff had not timely requested a separate refund. ORS
314.415(7) conditions Defendant’s authority to make separate refunds on receiving a request from either spouse.

FINAL DECISION TC-MD 160241N 5
IT IS THE DECISION OF THIS COURT that Defendant’s Motion for Summary
Judgment is denied.
IT IS FURTHER DECIDED that Plaintiffs’ appeal is granted.
IT IS FURTHER DECIDED that Plaintiffs’ request for costs and disbursements in the
amount of $252 is granted.
Dated this day of February 2017.
ALLISON R. BOOMER
MAGISTRATE
If you want to appeal this Final Decision, file a complaint in the Regular
Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR
97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your complaint must be submitted within 60 days after the date of the Final
Decision or this Final Decision cannot be changed. TCR-MD 19 B.
This document was filed and entered on February 24, 2017.