“Innocent” versus “Injured” Spouse

If your current or former spouse has gotten you into tax trouble, you may be able to get help from the IRS.

It all depends on whether the tax agency considers you “injured” or “innocent.” You probably think you qualify as both but they are two different legal terms:

An injured spouse files a joint return and loses all or part of a refund because of a spouse’s debts.

An innocent spouse claims no liability for items on a joint tax return that belong to a spouse or ex-spouse.

Let’s say you and your current spouse file a joint tax return and are expecting a large refund. But you receive a notice from the IRS stating that your refund is being seized to pay a debt owed only by your spouse. For example, back taxes from before you married, past due child support, a delinquent student loan or other federal debt.

You may be able to recover your portion of a joint tax refund that the IRS seized. To qualify, you must have earned your own income and made your own federal tax payments. Ask your tax advisor for more information if you think you qualify.

February 23, 2022

When you got married, you knew it was for “better or worse.” But you might not know about laws that hold you responsible if your spouse cheats on a tax return.

Married couples filing jointly should be aware that:

  • You are both responsible for tax, interest and penalties — even after a divorce or the death of a spouse.
  • The IRS may hold you responsible for all the tax due even if there is a divorce decree stating that your ex-spouse is accountable for previous joint returns.
  • You can be liable for tax even if none of the income on a tax return is attributed to you.

To illustrate how the law works, let’s say you have a wage-earning job and your spouse is self-employed. You file joint tax returns.

Next year, you get divorced and a year later, the IRS audits your tax return. Your ex-spouse is nowhere to be found and auditors determine that he or she didn’t report all the income from the business.

What Could Happen?

You are generally liable for paying the tax due, plus interest and any penalties. Your wages can be seized by the IRS even if you paid every penny owed on your share of the family income.

Fortunately, there may be a way to get off the hook. In some situations, the tax law provides “innocent spouse” relief if you can prove:

  • There is a substantial understatement of tax attributable to the grossly erroneous items of your spouse or ex-spouse.
  • The hidden income belonged to your ex-spouse and you didn’t benefit from it.
  • You didn’t know or have reason to know about the understatement.
  • It would be inequitable to hold you liable.

In January of 2012, the IRS released proposed streamlined procedures that make it easier to obtain equitable relief. In addition, the new guidelines includes an exception to the requirement that items must be attributable to the ex-spouse when that spouse’s fraud is the cause of the understatement or deficiency.

Be aware that the IRS is required to notify an ex-spouse that relief has been requested so that he or she can elect to participate. There are no exceptions, even for victims of domestic violence.

Advice: Don’t count on innocent spouse relief if you know your spouse is cheating on tax returns. The IRS often denies relief.

Consider filing separate tax returns — especially if you’re in the process of a divorce. It may save you a bundle in the future. For more information about your situation, consult with your tax advisor.

© 2022