When a married filing joint return is filed, both taxpayers are jointly and individually liable for the tax and any interest or penalty due on the return, even if they later divorce. This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously-filed joint returns. One spouse may be held responsible for payment of all taxes due even if all the income was earned by the other spouse. Knowing this makes the decision to file jointly important to consider if there will be taxes owed. However, there is what is called Innocent Spouse Relief. An innocent spouse seeking relief from joint tax liability must meet all of the following conditions:
* The tax must be based on a joint return for the year that relief is sought.
* The return must have understatement of tax owed to erroneous items of the taxpayer's spouse.
* The spouse seeking relief did not know of the understatement of tax, and
* It would be unfair to hold the spouse seeking relief liable for the understatement of tax.
Relief from joint liability can be requested by filing Form 8857, Request for Innocent Spouse Relief. Requests for separation of liability must be made within two years of the first collection action by the Internal Revenue Service. Separation of liability applies to understatement of tax and is requested by filing a statement along with Form 8857 showing the total amount of understatement of tax and an explanation for each item as to whether the tax is attributable to the spouse seeking relief. In order to request relief by separation of liability for a prior joint return, the following requirements must be met:
The spouses are divorced, legally separated, or one has died.
Also, during the 12-month period ending on the date of Form 8857 was filed, the spouses were not members of the same household.
There are however, exceptions to the 2-year limit.
If a taxpayer seeking relief does not qualify for innocent spouse relief or relief by separation of liability, the taxpayer may still be eligible for equitable relief.
Under equity relief, the taxpayer may be relieved of liability for underpayment of tax, as well as understatement of tax, unlike other provisions where relief may be granted for only understatement.
What happens when a taxpayer is filing a joint return and all or part of a refund is expected to be applied against debts of the other spouse, such as past-due federal taxes, child or spousal support, student loans or state income taxes? This happens when someone marries into an existing debt of the spouse. In this situation, the injured spouse can request Injured Spouse Allocation (Form 8379). If all three of the following apply, Form 8379 (Injured Spouse Allocation) may be filed.
* The injured spouse is not required to pay the past due amount,
* The injured spouse reported income, such as wages, taxable interest, etc., on the joint return, and
* The injured spouse made payments, such as federal income tax withheld or estimated payments, or claimed EIC or other refundable credit on the joint return.
This form may be filed with the tax return. If the tax return was already filed, sent Form 8379 by itself to the IRS center where the return was filed along with all forms W-2, and W2G for both spouses showing federal income tax withholding.
For more information on Innocent or Injured Spouse, visit the IRS website and type Pub. 971 in the search engine.
Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-686-1995 or at email@example.com.