INDIVIDUAL TAX | 09/07/2024
Dealing with unexpected tax bills can be overwhelming, especially if the liability stems from your spouse’s or ex-spouse’s errors. The IRS’s joint and several liability rules hold each spouse jointly responsible for the full tax liability on a couple’s combined income when filing a joint tax return. This means the IRS can pursue either spouse for the entire amount owed, including additional tax deficiencies, penalties, and interest assessed after an audit.
If you find yourself unfairly burdened by such a situation, you may qualify for innocent spouse relief, a provision designed to protect individuals from unjust tax liabilities.
What Is Innocent Spouse Relief?
Innocent spouse relief provides protection to individuals who:
- Were unaware of a tax understatement attributable to their spouse.
- Had no reason to know about the understatement and had no suspicious circumstances that should have alerted them.
- Can demonstrate that it would be inequitable to hold them responsible for the tax.
Who Can Apply?
- Spouses who are still married and living with their partner.
- Individuals who are divorced, widowed, legally separated, or living apart from their spouse.
Recent Court Cases: Success and Challenges
Taxpayer Wins Relief
In one case (TC Memo 2024-26), a married couple’s joint tax return understated their tax liability. The wife:
- Was unaware of her husband’s business activities.
- Had no access to his finances, which he concealed using separate bank accounts.
The Tax Court determined it would be inequitable to hold her liable, granting her innocent spouse relief.
Taxpayer Denied Relief
In another case (162 TC No. 2), a widow claimed economic hardship if forced to pay her deceased husband’s unpaid taxes. However, she failed to substantiate her income or asset values, while records showed she enjoyed significant benefits like luxury vacations and a high-end vehicle purchase. The Tax Court denied her relief request.
What About Injured Spouse Claims?
An injured spouse claim is distinct from innocent spouse relief. This relief is designed for situations where a joint tax refund is intercepted to cover one spouse’s debts, such as:
- Past-due federal or state taxes.
- Child or spousal support.
- Federal nontax debts (e.g., student loans).
An injured spouse can request their share of the refund be allocated back to them.
What to Keep in Mind
- The Relief Process Can Be Complex
- Obtaining innocent spouse relief or filing an injured spouse claim requires meeting strict criteria, submitting proper paperwork, and adhering to deadlines.
- Consider Future Filing Choices
- Joint returns often provide tax savings but come with joint and several liability. Filing separately ensures each spouse is responsible only for their own tax obligations.
How We Can Help
Our team of tax professionals can assist you with:
- Evaluating your eligibility for innocent spouse relief or injured spouse claims.
- Preparing and filing the necessary forms to meet IRS requirements.
- Exploring future filing strategies to minimize risks related to joint and several liability.
Contact us today to ensure you’re protected from unfair tax burdens and to navigate the process with confidence.