If you’ve been through a divorce, chances are your view of many subjects is less than cheery. But when you add taxes into the equation, things can be especially frustrating. What if you find that you are liable for tax due on a joint return that was improperly filed by your spouse? Do you have any recourse? Well…yes, if you fulfill the IRS definition of an ‘Innocent Spouse’. There is also relief possible for ‘Injured Spouse’, but that’s a different thing. Remember, as always, that the definition is key: don’t get excited about these titles – even if you may already feel like an innocent or an injured spouse – these are IRS rules that we’re talking about here.
‘Innocent Spouse’ defined:
Did you file a joint tax return as ‘married filing jointly’? Those three little words translate into: each taxpayer is legally responsible for the entire liability of the taxes for that filing, even if the taxpayers later divorce. That’s right, even if they later divorce.
This is called “joint and several liability” and it means that both spouses are responsible for all the tax due even if (for example) only one of you made all the money and prepared the tax return with improper income, deductions or credits information.
And here’s the hard part: even if you have a divorce decree stating that your former spouse is responsible for any amounts due on those returns, the IRS still finds you both responsible.However, in some cases it is possible to get relief — there are three options to consider…
- Innocent Spouse Relief – If your spouse or former spouse didn’t report income, or reported it improperly, or claimed improper deductions or credits, you could use this vehicle to try to provide yourself relief from the taxes owed.
- Separation of Liability Relief– In this option, the IRS allocates the tax burden separately to each of you. In this case if an item was not reported properly on the joint return, then the IRS could allocate to you only the amount for which you are responsible. This is often the best choice to make to achieve relief.
- Equitable Relief – What if something was not reported properly on a joint return, and is ‘generally able to be attributed to your spouse’? Or what if the correct amount of tax was reported on the return but the tax remains unpaid? This last option is really a last chance scenario, but if you don’t qualify for the first two, this one may apply.
As always, be aware – this relief from a joint liability applies only in certain limited circumstances. One thing in your favor, however is that in 2011, the IRS eliminated the two-year time limit that applies to relief requests, which may be of assistance to you.
Birds-eye view of the choices:
In the next blogs, we’ll take a closer look at this topic, describe the qualifications, and define how it differs from “Injured Spouse Relief”.
For help with these and other tax issues, contact Litchfield County, Connecticut tax attorney Martha Miller, admitted to practice in CT, NY, and before the US Tax Court at 860-435-4666. We accept state tax problems for CT, MA and NY, and we accept U.S. federal tax problems from any location in the world.