Navigating the complexities of tax law can be difficult, especially when faced with an unexpected tax bill due to the errors of a spouse or ex-spouse. The reason for such a bill has to do with the concept of “joint and several” liability. When a married couple files a joint tax return, each spouse is liable for the full amount of tax on the couple’s combined income. Therefore, the IRS can come after either spouse to collect the entire tax — not just the part that’s attributed to one spouse or the other. This includes any tax deficiency that the IRS assesses after an audit, as well as any penalties and interest.
There may be relief
In some cases, spouses are eligible for “innocent spouse relief.” This generally involves an individual who was unaware of a tax understatement that was attributable to his or her spouse. To qualify, you must show that you didn’t know about the understatement and that there was nothing that should have made you suspicious. In addition, the circumstances must make it inequitable to hold you liable for the tax.
This relief is available even if you’re still married and living with your spouse. In addition, individuals may be able to get relief for tax deficiencies on joint returns if they’re divorced, widowed, legally separated or living apart.
Recent court cases
Not surprisingly, the issue of innocent spouses is frequently litigated. Here are some cases from this year:
- Taxpayer wins. In one case, it was undisputed that a married couple’s joint tax return included an understatement of tax. The IRS and the wife agreed that she didn’t know, or have reason to know, that the correct amount of taxes wasn’t paid. She wasn’t involved in her now ex-husband’s employment or business activities. He concealed his finances from her and kept separate bank accounts. The U.S. Tax Court weighed all factors and found it would be inequitable to hold her liable for the deficiency. Her request for innocent spouse relief was granted. (TC Memo 2024-26)
- Taxpayer loses. In another case, a widow argued that if she paid the taxes owed by her deceased husband, she’d suffer economic hardship. Her annual income, she testified, was far below the poverty line and her assets were insufficient to pay the taxes. However, she failed to provide evidence to support her income or the value of her two homes. Records showed that while her income taxes remained unpaid, she enjoyed significant benefits, including several expensive vacations and the purchase of a luxury vehicle. The U.S. Tax Court denied her request for relief. (162 TC No. 2)
An “injured spouse”
In addition to innocent spouse relief, there’s also relief for an “injured spouse.” What’s the difference? An injured spouse claim asks the IRS to allocate part of a joint refund to one spouse. In these cases, all or part of an injured spouse’s refund from a joint return is applied against past-due federal tax, state tax, child or spousal support, or a federal nontax debt (such as a student loan) owed by the other spouse. If you’re an injured spouse, you may be able to recoup your share of the refund.
A challenging process
Whether, and to what extent, you can take advantage of the above relief depends on the facts of your situation. If you’re interested in trying to obtain relief, there’s paperwork that must be filed and deadlines that must be met. We can assist you with the details.
Also, keep “joint and several liability” in mind when filing future tax returns. Even if a joint return results in less tax, you may choose to file a separate return if you want to be certain you’re responsible only for your own tax. Contact us with any questions or concerns.