When a divorce enters the tax picture, sometimes things can get ugly. Finances are the last thing that couples generally think about when they get married, but later, especially if things don’t work out between the two, finances and taxes owed can become a battleground.
In the last blog [Divorce and Taxes], we looked at the description of ‘Innocent Spouse’ as the IRS defines it. Now let’s take a look at “Injured Spouse” so that you are clear on the differences between these two categories. Basically, Injured Spouse has to do with a refund which you believe you are due, but which instead is being applied to your spouse or former spouse’s past due IRS financial obligations.
How do I know if I qualify? First of all, find out if you live in a community property state. If so, there are special rules that apply to you because of community property laws. If that is not your situation, then take a look at the following items.
Things to consider –
1. You must have paid federal income tax or claimed a refundable tax credit, and not be legally obligated to pay the spouse’s past-due debt. (see Divorce and Taxes!). [‘Refundable tax credit’ includes things such as Earned Income Credit or Additional Child Tax Credit].
2. If you filed a joint return, and you’re not responsible for the debt, but you are entitled to a portion of the refund, you may file for ‘Injured Spouse Allocation’. This gives you the right to request a portion of the refund through an allocation.
3. If you file for ‘Injured Spouse Allocation’ (Form 8379), you have the possibility of filing it at the same time that you file your taxes. If you do this, there are specific things that have to be recorded on the tax return, so talk to your tax professional to make sure you do it correctly.
4. If you file Form 8379 by itself, both spouse’s Social Security numbers must be on it, on the same order that they are on your return, and you as the ‘injured’ party must sign the document.
5. DO NOT use Form 8379 if you plan on claiming “Innocent Spouse Relief”; that requires an entirely different form!
As you will see in the next blog, it is all about the details: if you qualify, how you qualify, what documents to file and what timeline must be followed. It’s good to have professional tax attorney help available to guide you to the right result.
For questions about these and other tax matters, contact Litchfield County, Connecticut tax attorney Martha Miller, admitted to practice in CT, NY, and before the US Tax Court. We accept state tax problems for CT, MA and NY, and we accept U.S. federal tax problems from any location in the world.