Taxpayers who are legally married must file either a joint or a married filing separately tax return, and both spouses must sign the return or it is not considered a joint return. Generally, both spouses are liable jointly and separately for tax, interest and penalties due on a joint return, even if only one spouse had income.
If the spouses are divorced, they are still liable for any tax due on a joint return for a tax year ending prior to the divorce. Even if the divorce decree states that only one of the spouses is responsible for any liability due on previously filed joint returns, both spouses are still liable for those amounts jointly and separately.
However, one spouse may be released from the joint liability of tax, interest and penalties under IRC Sec. 6015 provisions of Innocent Spouse Relief.
Innocent Spouse Relief provides relief for a spouse from tax owed if the other spouse reported income incorrectly, either by under-reporting income or over-reporting deductions and/or credits or using incorrect property basis. The spouse requesting the Innocent Spouse Relief must be able to show that they did not know of the errors when they signed the joint return.
The taxpayer must meet all the following qualifications:
- a joint return was filed;
- there is an understatement of tax due to erroneous items of the other spouse; and
- the taxpayer can show that they did not know, and had no reason to know, of this erroneous item.
Partial Relief may be available if the taxpayer had no knowledge of only a portion of an erroneous item. They will be relieved of the understatement due to that portion of the item.
Separation of Liability Relief allocates the understated tax (plus interest and penalties) from spouses or former spouses who filed a joint return. The taxpayer must no longer be married to or must be legally separated from the spouse with whom they filed the joint return, and the taxpayer may not be a member of the same household for 12 months prior to the date they request relief. The understated liability from the joint return is allocated between the spouses.
To request separation of liabilities, the taxpayers must have filed a joint return for a tax year, no longer be married to or be legally separated that spouse, and not be members of the same household during the 12-month period ending on the date Form 8857, Request for Innocent Spouse Relief, is filed. In addition, the spouse requesting relief establishes that he or she did not know and had no reason to know, that there was an understatement; and neither spouse transferred property to the other spouse in order to avoid tax.
There is an exception for spousal abuse or domestic violence. If the taxpayer can establish that he or she signed the tax return under duress, then it is not a joint return and the taxpayer is not liable for any tax deficiency on that return.
Equitable Relief is possible if the taxpayer is not eligible for innocent spouse or separation of liability relief and can show that it would be unfair to be held responsible for the understated or underpaid tax. Equitable relief may be available if all the following conditions are met:
- the taxpayer is not eligible for Innocent Spouse Relief, separation of liability relief or relief from liabilities arising from community property law;
- there is an understated or underpaid tax for the tax year;
- the tax was not paid;
- the taxpayer establishes, considering all the facts and circumstances, that it would be unfair to be held liable for the tax;
- no assets were transferred between spouses as part of a fraudulent scheme or to avoid tax liabilities;
- the return was not filed with the intent to commit fraud; and
- the income tax liability must be attributable to an item of the other spouse.
Factors the IRS will consider in determining whether to grant equitable relief include the following:
- Were the spouses separated or divorced?
- Would the taxpayer suffer a significant economic hardship if relief was not granted?
- Does the taxpayer have a legal obligation to pay the tax under a divorce decree?
- Did the taxpayer receive a significant benefit due to the unreported item?
- Did the taxpayer know, or have reason to know, about the items causing the understated tax or that the tax would not be paid?
- Was the taxpayer requesting relief, abused, or in poor mental state or physical health when signing the return?
Taxpayers who reside in a community property state but did not file a joint return may qualify for one of these types of relief under certain provisions. There are different requirements for each type of relief. Form 8857 must be filed to request relief in these categories. Note that the Innocent Spouse Relief provisions do not apply to transferee liabilities.
Injured Spouse Relief
When filing a joint return, a joint tax refund might be applied to one of the spouse’s debts. This includes legally enforceable items, including federal income tax, state and/or local income tax, child support, spousal support from a previous marriage, other federal non-tax debts such as student loans, traffic tickets and state unemployment compensation debts.
The spouse who does not owe these debts can receive their share of the federal tax refund if they can qualify as an injured spouse. Someone is considered an injured spouse if a joint return was filed and all or part of their share of the overpayment was, or is expected to be, applied against the other spouse’s past-due debts. The injured spouse is eligible to receive their share of the overpayment that would have been used to pay the past-due debt.
In order to be considered an injured spouse, the taxpayer must have paid and reported all tax payments, including estimated and withheld payments. The taxpayer also must have claimed all refundable tax credits, such as the earned income credit EIC and additional child tax credit, and not have been legally obligated to pay the past due debt of the other spouse.
However, the IRS cautions taxpayers that refunds involving community property states must be divided according to local law. If the taxpayer lives in a community property state in which all community property is subject to the debts of either spouse, then the entire refund is generally used to pay those debts.
When to file Form 8379:
- If the taxpayer is an injured spouse, they must file Form 8379, Injured Spouse Allocation, to have their portion of the overpayment refunded to them.
- If the taxpayer has not yet filed the joint return, and knows that the joint refund will be offset, then they should file Form 8379 with the return.
- If the taxpayers have already filed a joint return and the joint refund was offset, then the innocent spouse should file Form 8379 by itself.
Please note that an injured spouse claim is different from an Innocent Spouse Relief request. An injured spouse uses Form 8379 to request an allocation of the tax overpayment attributed to each spouse. An innocent spouse uses Form 8857 to request relief from joint liability for tax, interest and penalties on a joint return for items of the other spouse (or former spouse) that were incorrectly reported on or omitted from the joint return.
Innocent Spouse vs Injured Spouse
|Innocent: Form 8857||Injured: Form 8379|
|Requesting spouse wants||Relief from joint and several liability for tax||Relief from past-due tax and non- tax debt of other spouse|
|Non-requesting spouse||Included erroneous items on joint return or did not pay tax (equitable relief only)||Has debt subject a federal refund offset|
|Relief affects||Innocent spouse’s share of federal tax owed||Injured spouse’s share of federal refund|
|Joint return||Year of tax liability||Year of allocation request|
|Multiple years on same form||Yes, for a single spouse; one spouse per Form 8857||One tax year per Form 8379|
|File with Form 1040||May not be filed with Form 1040 or 1040X||May be filed with Form 1040 or 1040X|