Relief from Joint and Several Liability on Joint Returns

Paul Roberts
October 18, 2007 — 1,726 views  
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Innocent Spouse
When a joint tax return is filed, both taxpayers are jointly and individually liable for the tax and any interest or penalty due on the return even if they later divorce. This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on a previously filed joint return. One spouse may be held responsible for payment of all tax due even if all of the income was earned by the other spouse.

An innocent spouse seeking relief from joint tax liability must meet all of the following conditions:

  1. The tax must be based on a joint return for the year for which relief is sought,
  2. The return must have understatement of tax due to erroneous items of the taxpayer’s spouse,
  3. The spouse seeking relief did not know of the understatement of tax, and
  4. It would be unfair to hold the spouse seeking relief liable for the understatement of tax.

Relief from joint liability can be requested by filing Form 8857, Request for Innocent Spouse Relief, no later than two years after the date on which the IRS first attempted to collect the tax for which relief is sought.

Relief by separation of liability. This type of relief applies to understatement of tax, and is requested by filing a statement along with Form 8857 showing the total amount of understatement of tax and an explanation for each item as to whether the tax is attributable to the spouse seeking relief. For example, unreported income earned by a spouse, plus any related SE tax, would be allocated to that person.

In order to request relief by separation of liability for a prior joint tax return, the following requirements must be met:

  • The spouses are divorced, legally separated or one has died, and
  • During the 12-month period ending on the date Form 8857 was filed the spouses were not members of the same household.

Equitable relief. If the taxpayer seeking relief does not qualify for innocent spouse relief or relief by separation of liability, the taxpayer may still be eligible for equitable relief. Under equitable relief, the taxpayer may be relieved of liability for underpayment of tax as well as understatement of tax, unlike the other provisions where relief may be granted only for understatement.

Relevant factors the IRS will consider in granting equitable relief include:

  • Whether the spouses are separated (legally or not) or divorced. A temporary absence will not qualify.
  • Whether the taxpayer would suffer a significant economic hardship if relief is not granted (i.e., not being able to pay reasonable basic living expenses).
  • Whether the taxpayer received a significant benefit — beyond normal support — from the item causing the understatement of tax.
  • Whether the taxpayer knew of or had reason to know of the underpayment or understatement of tax.
  • Whether the taxpayer had a legal obligation under a divorce decree to pay the tax.

Injured Spouse
An injured spouse is a taxpayer who files a joint return and all or part of a refund is, or is expected to be, applied against debts of the other spouse.

The following debts apply for this purpose:

  • Past-due federal tax
  • Child or spousal support
  • Federal nontax debt (such as a student loan)
  • State income tax

Form 8379, Injured Spouse Claim and Allocation. File Form 8379 if all three of the following apply:

  1. The spouse is not required to pay the past-due amount,
  2. The spouse reported income such as wages, taxable interest, etc., on the joint return, and
  3. The spouse made payments such as federal income tax withheld or estimated payments, or claimed the EIC or other refundable credit on the joint return.

Exception: If the main home of the injured spouse was in a community property state (AZ, CA, ID, LA, NV, NM, TX, WA, WI), the spouse may file Form 8379 if only item (1) above applies.

Filing. Form 8379 may be filed with the tax return. If the return was already filed, send Form 8379 by itself to the IRS center for the place the injured spouse lived when the return was filed.

Allocation. Part II of Form 8379 lists income and withholding amounts shown on the joint return, amounts allocated to the injured spouse and amounts allocated to the other spouse. The IRS will figure the amount of any refund due the injured spouse.

Paul Roberts

Tax Materials, Inc