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Many married taxpayers choose to file a joint tax return because of the tax savings this filing status frequently generates. The downside of filing a joint return is that both taxpayers are jointly and severally liable — i.e., legally responsible for the entire liability — for payment of the tax and any additional tax, interest and penalties that arise from the joint return, even if they later divorce. Both spouses on a married filing jointly return are generally held responsible for all the tax due even if one spouse earned all or a much larger proportion of the income or claimed all the improper deductions or credits. In appropriate cases, however, a husband or wife may qualify for relief from joint and several liability.
Similar to various other remedies from unfair tax burdens made available by the Internal Revenue Code, relief from joint and several liability appears on the surface to be simply a matter of filling out the proper numbered IRS forms and mailing them in with copies of the documents identified in the forms or accompanying instructions. Like most other IRS relief mechanisms, however, a do-it-yourself approach is likely to be both time-consuming and self-defeating because a thorough, accurate and compelling written presentation of the case — the first time around — is essential to any hope for obtaining a favorable decision from the IRS.
There are currently three types of relief from joint and several liability for spouses who filed joint returns:
Innocent Spouse Relief provides relief from additional tax for which the spouse/former spouse is jointly and severally liable because one’s spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits on a joint federal tax return.
To qualify for innocent spouse relief, the spouse/former spouse must meet all of the following conditions:
Separation of Liability Relief provides for the allocation of additional tax owed between the spouse/former spouse and his/her former spouse or current spouse from whom he/she is separated when an item was not reported properly on a joint return. The tax allocated to the spouse/former spouse is the amount for which the spouse/former spouse is responsible based on the spouse/former spouse’s proportionate share of taxable income.
To qualify for separation of liability relief, the spouse/former spouse must have filed a joint return and must meet one of the following requirements at the time the spouse/former spouse request relief:
If at the time the spouse/former spouse signed the joint return the spouse/former spouse had actual knowledge of the item that gave rise to the understatement of tax, the spouse/former spouse does not qualify for separation of liability relief.
Equitable Relief may apply when the spouse/former spouse does not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return and generally attributable to the other spouse. Significantly, the spouse/former spouse may also qualify for equitable relief even if the amount of tax reported is correct on the joint return but the tax was not paid with the return.
To qualify for equitable relief, the spouse/former spouse must establish that under all the facts and circumstances, it would be unfair to hold the spouse/former spouse liable for the understatement or underpayment of tax. If the spouse/former spouse requests relief from joint and several liability, the IRS is required to notify the spouse with whom the spouse/former spouse filed the joint return of the request for relief and allow him/her to provide information for consideration regarding the claim.
The spouse/former spouse must request innocent spouse relief or separation of liability relief no later than two years after the date the IRS first attempted to collect the tax from the spouse/former spouse. For equitable relief, the spouse/former spouse must request relief during the period of time the IRS can collect the tax from the spouse/former spouse. If the spouse/former spouse is seeking a refund of tax he/she paid on the ground that the entire payment should be assessed against the other spouse, the spouse/former spouse must request it within the "statute of limitations" period for seeking a refund, which is generally three years after the date the return is filed or two years following the payment of the tax, whichever is later.
The process of qualifying for and obtaining relief from joint and several federal tax liability is surprisingly complex and riddled with strict prerequisites and deadlines. If you are being threatened with IRS collection activity that you attribute to errors or wrong-doing in tax return filing made solely by your spouse or former spouse, you should contact Philadelphia tax attorney Joseph R. Viola for a face-to-face consultation to find out of you qualify for one of the IRS programs designed to help taxpayers in your situation. Joe Viola has successfully taken many taxpayers through this process and you owe it to yourself to get your case properly presented.