There are certain benefits that married taxpayers benefit from when filing a joint tax return. With a joint return both taxpayers are jointly and severally liable for the tax additions to tax interest or penalties that arise as a result of the joint return even if they divorce at a later date. Joint and several liability means that each taxpayer is legally responsible for the entire liability. So both spouses are generally held responsible for all the tax due even if one spouse earned all the income or claimed improper deductions or credits.
Even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns it is still true that both spouses will be held responsible. However in some cases a spouse can get relief from joint and several liability. There are three ways a spouse can get relief from joint and several liability even if they filed joint returns.
Innocent Spouse Relief
This provides you relief from any additional tax you might owe if your spouse or former spouse failed to report income improperly reported income or claimed improper deductions or credits. Here are the conditions you must meet all of in order to qualify for the Innocent Spouse Relief:
- You filed a joint return that has an understatement of tax (deficiency) that is solely attributable to your spouse’s erroneous item. An erroneous item includes income received by your spouse but which was omitted from the joint return. Deductions credits and property basis are also erroneous items if they are incorrectly reported on the joint return.
- You establish that at the time you signed the joint return you did not know and had no reason to know that there was an understatement of tax.
- Taking into account all the facts and circumstances it would be unfair to hold you liable for the understatement of tax.
Separation of Liability Relief
If an item was not reported properly on a joint return this type of relief provides for the allocation of additional tax owed between you and your former spouse or your current spouse from whom you are separated. The tax allocated to you is the amount for which you are responsible.
To qualify for “separation of liability relief” you must have filed a joint return and must meet one of the following requirements at the time you request relief:
- You are divorced or legally separated from the spouse with whom you filed the joint return.
- You are widowed.
- You have not been a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 885 Request for Innocent Spouse Relief.
- If at the time you signed the joint return you had actual knowledge of the item that gave rise to the understatement of tax you may not qualify for separation of liability relief.
Innocent Spouse Relief or Separation of liability relief must be requested no later than two years after the date the IRS first attempted to collect the tax from you. For equitable relief you must request relief during the time the IRS has to collect the tax from you. If you are seeking a refund of tax you paid then your request must be made within the time period for seeking a refund which is generally three years after the date the return is filed or two years following the payment of the tax whichever is later.
This may apply when you do not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return and generally attributable to your spouse. Equitable relief may also apply if the correct amount of tax was reported on your joint return but the tax remains unpaid.
To qualify for equitable relief you must establish that under all the facts and circumstances it would be unfair to hold you liable for the understatement or underpayment of tax. You must meet other requirements in addition listed in Publication 971 entitled Innocent Spouse Relief.
Joint and several liability should not be confused with an injured spouse claim. An “injured spouse” is a person who filed a joint return and all or part of your share of the refund was or will be applied against the separate past-due federal tax state tax child support or federal non-tax debt (like student loans) of your spouse with whom you filed the joint return.
To find out more about how you can protect yourself from issues arising due to filing joint tax returns contact Lindemeyer CPA. We will provide some insight into how to better recover lost funds and file in the most efficient way in the years to come.