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“The Tax Debt Belongs To My Spouse”: The Difference Between Innocent Spouse Relief and Injured Spous

Innocent Spouse When you file a tax return with your spouse, the law holds you “jointly and severally” liable for the debt. This means that the IRS is allowed to collect the debt from both of you, or each of you. This remains true even if you eventually divorce your spouse. In order to be relieved from liability, you must prove that you did not know or had reason to know about the tax debt. Take a look at Situation 1 below:

Situation 1 You receive a notice from the IRS stating that some income was left off of your joint tax return. You say to yourself “that’s strange.” You give the notice to your spouse because your spouse handles all of the tax matters, including filing and paying. Your spouse tells you “don’t worry about it.” Life goes on until you receive another notice from the IRS saying that you and your spouse owe an astronomical amount of taxes. You take a closer look at this letter and realize that your spouse took money out of a retirement account and failed to report it. You had no idea this occurred and thought that the only income was from your spouse’s wages.

In this situation, once you become aware of the tax liability, you would seek innocent spouse relief. You are essentially telling the IRS that you did not know that your spouse failed to report all of his or her income on the tax return; therefore, you should not be held liable.

Injured Spouse Relief Injured spouse relief is applicable when you file a joint return with your spouse and your refund is seized and applied to your spouse’s debts. The debts can include other federal debts (student loans), child support, or state tax debt. Typically your spouse’s social security number will spark the seizure of the refund. Take a look at Situation 2 below:

Situation 2 You file your return jointly with your spouse. Both of you are involved in the process of preparing and paying the taxes. You are due a refund this year; however, you receive a notice stating that your refund is being applied to your spouse’s delinquent student loan debt.

Injured spouse relief helps you to get your share of the refund back. If you file for relief, the IRS will allocate your income, deductions, and credits as if you and your spouse each filed a separate tax return. The allocation is used to determine which portion, if any, of the refund is yours. Items that are joint in nature (i.e. mortgage interest) will be divided equally.

Be aware that the facts and circumstances of each case will determine whether relief is applicable. If you think that you may qualify for either type of relief, please contact a tax professional. Also, if you would like additional information regarding this subject, please give us a call.

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