What To Know About Joint & Several Liability
Married couples who file a joint tax return can have a distinct financial advantage over those who file separately. However, when a married couple files a joint return, each spouse takes on full responsibility for the entire tax liability. This state of affairs is referred to as joint and several liability.
In cases where the joint return is error-free and neither spouse has a preexisting tax liability, this represents an optimal filing status. Problems can arise, however, when a joint return includes erroneous items attributable to one spouse. If a taxpayer can prove that a tax liability was brought about exclusively through the actions of his or her spouse, that taxpayer may be eligible for innocent spouse relief.
When a joint return has an understated tax liability (deficiency) due to erroneous items completely attributable to a taxpayer’s spouse or former spouse, innocent spouse relief is a viable resolution strategy. Erroneous items include omitted income, incorrectly claimed deductions or credits, and incorrect property bases, among others.
How to Qualify for Innocent Spouse Relief
Taxpayers must meet the following conditions in order to claim innocent spouse relief for an otherwise joint tax liability:
- The relief must be requested no more than two years after the IRS begins collection actions for the debt.
- The tax deficiency appearing on the joint return must be exclusively attributable to the taxpayer’s spouse.
- The taxpayer must demonstrate that he or she had no awareness — and had no reason to be aware of — the tax deficiency attributable to the spouse.
- Holding the taxpayer liable for the tax deficiency would be unfair given all relevant facts and circumstances present in the case.
The Difference Between an Injured Spouse and an Innocent Spouse
If you’re searching for information about innocent spouse relief, you may come across the term injured spouse at one point or another. Although they are often mixed up, the terms innocent spouse and injured spouse should not be used interchangeably.
For purposes of clarification, an injured spouse claim seeks allocation of a refund of a joint return, while an innocent spouse claim seeks relief or allocation on the joint and several liability of a joint return. You’re an injured spouse if all or part of your share of a refund from a joint return was or will be applied against the past-due separate debts (e.g. federal or state tax, child or spousal support, or federal non-tax debt such as a student loan) owed by your spouse. If you’re an injured spouse, you may be entitled to recoup your share of the refund.
Our goal at Boxelder Consulting is to find the resolution strategies that provide the best results for you in the shortest amount of time. If you’re considering utilizing innocent spouse relief, reach out to our team of licensed tax professionals — we can review your case, file the necessary paperwork, and negotiate directly with the IRS on your behalf.