Many married couples file jointly. But what does that mean for your individual liability? And if you get divorced, how does that play in? Relief may be available if for certain past-due taxes.
Joint and several liability explained
For married couples filing jointly, each person is “jointly and severally” liable for the full amount due. This means the IRS can collect the entire tax amount from either person. This liability includes any tax deficiency found after an audit in addition to penalties and interest. Civil fraud penalties, however, can be imposed on people who actually committed fraud.
Determining innocence
Individuals may be eligible for innocent spouse relief if they didn’t know about a tax understatement attributable to the other spouse.
Proving eligibility requires a spouse to demonstrate that they were not aware of the understatement, nor should they have been suspicious. The circumstances must also make it inequitable to hold that person liable. Even for people married and living together, this relief may be available.
Additionally, spouses who are widowed, divorced, or legally separated may be able to limit liability.
How to limit liability
In order to limit liability to just your portion of a deficiency, you must show that you either didn’t know about your spouse's underestimation or that you signed under duress. If your spouse transferred assets to you to avoid taxes, this will increase your liability. In this case, the tax items that gave rise to the deficiency will be treated as if you’d filed separate returns.
Defining an injured spouse
Relief is available for both innocent and injured spouses. The difference is that an injured spouse can ask the IRS to allocate a portion of a joint tax refund to the injured spouse only. This refund can be applied against certain past-due taxes, child or spousal support, or federal debts owed by the other spouse.
Taking advantage of injured spouse relief depends on your situation. We can assist you with filing papers and meeting deadlines.
When filing future tax returns, keep joint and several liability in mind. Although filing jointly can result in a lighter tax burden, it also risks making you responsible for any underestimations your spouse makes.
Please reach out to your trusted Smolin Professional with any questions or concerns.