If you filed taxes jointly with your current or former spouse, and they failed to report and/or pay all of their income tax liability, you may be held liable for their debts. This is because U.S. tax law explicitly makes both spouses on a joint income tax return responsible for the entire tax liability (a legal concept known as "joint and several liability").

 

Even after a separation or divorce, you and your ex-husband or ex-wife remain responsible for each other's tax liability from any joint filings in the past (as well as for the current tax year, if you are still in the process of ending your relationship and are continuing to file jointly). This is true even if your divorce degree explicitly states that your former spouse will be solely responsible for past debts, since a divorce decree cannot nullify joint and several liability.

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However, it is possible to petition the IRS for innocent spouse relief, in which they agree that you didn't know (and had no reason to know) that there were understated taxes on the joint return. For example, suppose that a married couple files taxes jointly for 2016. The wife, Ann, earned $70,000 from her job at a large company, whereas her husband, Bob, claimed to have earned $75,000 from his small business. This was a bit low compared with recent years, but he told Ann business was slow. In fact, unknown to Ann, his business had had an above-average year. He actually earned $100,000, but spent $25,000 buying gifts for his girlfriend, Claire, including expensive jewelry and a trip to Las Vegas. He lied both to his wife Ann ("I'm meeting a big potential customer in Las Vegas next week...") and to the IRS. In July 2017 Ann discovers his affair and divorces Bob. In 2018, their joint tax filing for 2016 is audited by the IRS, which determines that the Bob underreported his income by $25,000 and also incorrectly claimed a business deduction for his "customer meeting" in Las Vegas, which they determine to be a non-business-related personal expenditure. The IRS concludes that Ann and Bob now owe many thousands of dollars in back taxes, interest, and penalties. However, when the Ann signed off on their 2016 joint tax return, in March 2017, she had not yet discovered the affair, and had no idea that Bob was lying to her about his income, or about the true nature of his "business trip" to Las Vegas. She petitions for innocent spouse relief. Taking into account all the facts and circumstances of her situation, the IRS determines that it would be unfair to hold Ann liable for the understated tax. She is granted her petition, and the tax debt is assigned entirely to her ex-husband, Bob.

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Related to innocent spouse relief is injured spouse relief. The IRS uses the term "injured spouse" to refer to someone who was owed a tax refund for their share of a joint return, yet their refund was taken by the IRS in order to pay down past-due federal or state taxes owed by their spouse or ex-spouse, or because their spouse or ex-spouse owes money for child support, spousal support, student loans, or certain other kinds of legally enforceable past-due debt. For example, suppose a husband, Dave, and wife, Emma, file jointly in 2017. This is her first marriage and his second; he divorced several years ago, and his ex-wife, Faith, has sole custody of their child. Emma earned $65,000 in 2017 but overwithheld slightly, so that she was actually owed a $2,000 tax refund. Dave earned $60,000 in 2017 but overwithheld slightly, so that he was actually owed a $1,500 tax refund. Meanwhile, unbeknownst to Emma, Dave owes $10,000 in back child support to Faith, which he's been refusing to pay ever since they got into an ugly screaming match at their child's last birthday party. The state government (which enforces child support) directs the IRS to levy his federal tax refund in order to help satisfy the child support debt. Thus, instead of Dave and Emma receiving a $3,500 tax refund ($2,000 from Emma's overwithholding and $1,500 from Dave's overwithholding), they get nothing. In this case Emma is an "injured spouse" because the IRS seized her tax refund to pay a debt that was entirely her husband's fault. After all, why should her $2,000 federal tax refund get taken away because Dave refused to pay child support to Faith? This has nothing to do with Emma at all. Thus, she is eligible to apply to the IRS for relief as an "injured spouse," which compels them to return her $2,000 tax refund and instead add $2,000 to Dave's child support debt, for which he will be pursued relentlessly until it is satisfied.

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State tax authorities and the IRS are sympathetic to the situation of people whose tax problems are not of their own making, but rather due to the errors or behavior of their spouse or ex-spouse. This is why they have created innocent and injured spouse relief programs. However, petitioning to be considered an innocent and/or injured spouse requires careful documentation and reporting of your situation, and many applications are rejected because of insufficient proof. Gold Path Tax can help you prepare your petition and guide you through the entire process, including appealing an initial rejection. Contact us today for a free initial consultation with an experienced tax attorney. Our Managing Attorney, Goldie Greenstein, can be reached by phone at 248-246-1154, or by e-mail at goldie@goldpathtax.com.