Innocent Spouse Relief

Joint Returns: the Good, and the Bad

Married taxpayers can file joint tax returns, and most do. Joint filing offers more tax benefits than separate filing. According to the IRS, the following applies when filing separately.

You should itemize deductions if your spouse itemizes deductions.
You can’t take the credit for child and dependent care expenses in most instances.
You can’t take the Earned Income Tax Credit.
You can’t exclude interest from qualified U.S. savings bonds that you used for higher education expenses.
You can’t take the credit for the elderly or the disabled unless you lived apart from your spouse all year.
You will likely have to include in income a greater percentage of any social security benefits or equivalent railroad retirement benefits you received.
You can’t deduct interest paid on a qualified student loan.
You can’t take the education credits.
You may have a smaller child tax credit and credit for other dependents than you would on a joint return.
You can’t take the exclusion or credit for adoption expenses in most instances.

So, is filing jointly the best option? Not always. Sometimes separate returns give a greater refund. Also, in a joint return, both spouses are liable for any unreported income. Filing separately may be a better option if you suspect your spouse hides income from the IRS.

Some couples prefer filing separate returns and may amend to a joint return later. This strategy minimizes risk while allowing to switch to a greater refund later. Amending from a separate to a joint return is possible within three years of the original due date. Joint returns, in contrast, cannot be amended to separate returns.

Getting Relief While Married - Innocent Spouse Relief

You want to get relief from your spouse’s tax liability, and you filed a joint return. You will have to pay the tax due as shown on your return but may get relief from under-reporting tax. Relief is possible only if you had no reason to know about the under-reporting when you signed the return. The burden of proof lies with you, as long as you are still married and live together. So, it is relatively difficult to achieve. Contact us for help!

(IRS guidelines: IRM 25.15.3.7)

Getting Relief While Separated - Election to Allocate a Deficiency

Requesting relief becomes easier once a couple divorces / separates, or lives apart for more than 12 months. Then the burden of proof shifts to the IRS. They have to show that you had actual knowledge of your spouse’s item that caused the tax deficiency. Thus it is easier to get relief for separated couples. But you cannot get a refund under this provision – just a relief from a liability. Call us for more information!

(IRS guidelines: IRM 25.15.3.8.1)

Equitable Relief

Equitable relief might be an option if you are not eligible for either of the options discussed above – i.e. Innocent Spouse Relief or Election to Allocate a Deficiency. However, you can expect to succeed only in exceptional cases.

(IRS guidelines: IRM 25.15.3.9.4.1)

Injured Spouse - Not Liable, but the IRS Took Your Money

Sometimes the IRS does not pay out refunds but applies them to debts. Examples include

past years’ unpaid tax due
past due child support
debts to federal agencies
state income tax obligations
etc.

You may be able to get your share of the refund if it is your spouse who owes some of these items (IRS link).