You have waited all your life for “The One,” that person who you will spend the rest of your life with. Now you are married, and things seem to be going great. Life has never been better. Then, you receive a notice from the IRS stating that the refund that you were expecting has been reduced or is being used to pay off your spouse’s tax liability. The letter is information about your spouse’s unreported income.
When you file a “married filing jointly” tax return, you and your spouse are jointly and severally responsible for the entire tax liability. In plain English, the IRS will try to collect any tax from both of you or from either of you. This is true even if you later separate or get a divorce.
A taxpayer remains liable for any tax owed unless they can prove that they didn’t know or had no reason to know about the liability. This could occur due to unreported income, an incorrect tax deduction, credit or basis claimed by the spouse (or former spouse).
Is there anything you can do?
There are two options depending on your circumstances. To relieve yourself from some or all of your spouse’s liabilities, you may need to use one of them. One is called Innocent Spouse and the other is Injured Spouse. Though many believe these are the same, they are two completely distinct types of relief available to the taxpayer. Knowing the difference between them can save you time and the headaches of having to resubmit your claim because it was filed wrong the first time.
A person should seek Innocent or Injured Spouse relief once they become aware of the tax liability. There are some general differences between the two.
Innocent Spouse
- Innocent Spouse relief is usually used by someone who is legally separated or divorced from their spouse.
- Innocent Spouse relief is used to separate joint and several liability. To receive relief, you generally must prove that you had no knowledge or had reason to know of the under-reporting of income, overstatement of deductions, or erroneous claimed tax credits by your spouse on the tax return.
- Innocent Spouse relief is used only for the purpose of relieving yourself from an IRS tax debt you are liable for jointly.
- Generally, Innocent Spouse relief is requested once the IRS has alerted you of a problem. Usually through an audit to let you know that they are going to assess your spouse and you for a tax debt due.
Injured Spouse
- Injured Spouse is generally used by someone still married to their spouse.
- Injured Spouse relief is used when a portion of the tax refund is applied to offset a debt the spouse incurred prior to the marriage and that you are not liable to pay.
- Injured Spouse can be used when your portion of the tax refund is used to pay off IRS debt, but also other tax debts. These included state income tax, state unemployment compensation, child or spousal support, and student loan debt.
- An Injured Spouse claim is typically filed with the tax return. However, if you had no knowledge of the issue, you can still file for relief after the tax return has been filed.
Innocent Spouse and Injured Spouse relief each have its own IRS form to be filed, with each form requiring specific information. It is also important to know that in community property states (like Texas), injured spouse relief can be more difficult to achieve.
Both Innocent Spouse and Injured Spouse relief can be effective tools for helping deal with a tax liability if your circumstances warrant. However, dealing with the IRS is not a walk in the park and can be particularly challenging. If you find yourself in either of these situations, consult with a legal or tax professional about your rights as a taxpayer.
At ADKF, our Department of Tax Controversy offers a variety of services that can assist you if you feel you qualify for either Innocent or Injured Spouse relief. If you have any questions, please don’t hesitate to call at (210) 829-1300.