Defenses to Joint Tax Liability – The Innocent Spouse

Signing a Joint Return Makes You Liable For the Entire Amount of Tax Due

A teacher of mine, oh so long ago now, collected some science fiction short stories into a book he called Some Dreams are Nightmares.  For a few of us, that’s how marriage turns out.  No one likes to think about spousal abuse or betrayal but it happens.  And the tax code, of all things, is there to show mercy when it does.

Imagine this sad scenario:  Husband batters Wife, cheats on his taxes, in fear of him she signs their joint tax return without inspection.  Years later, even if they’ve divorced, the tax man may have to explain to Wife that she is entirely liable for the taxes owed on that joint return.  That’s what joint liability is, after all, and her signature is on the return.  But for Wife there is a possible relief from this trap:  The Innocent Spouse statute (IRC §6515).

There are lots of complications, of course, but it’s good to know we live in a time when the battered spouse is not victimized again, years later, via the tax collector.  If this sounds like your situation, consult a tax expert as soon as possible.  There is hope.

Know, however, that Wife won’t qualify for joint liability relief if she’s still living with Husband, even if on paper they are divorced.  Wife also needs not to have participated in a fraud which gave rise to the tax deficiency.  Wife cannot have acted in concert with Husband, either.  And certain types of Innocent Spouse relief are time limited:  the claim must be made within two years of the onset of collection activity on the joint return.

But if available the aggrieved spouse may be released completely from her responsibility for the tax owed.  In the alternative the joint return might be split in two, one for him and one for her, with the shares of their deductions and tax liability apportioned.

Of course, not every issue arises from abuse or outright fraud.  Consider a married couple where one spouse (let’s say Wife this time, just to spread it around a bit) owns her own business, dutifully reports all her income, and accurately claims all her deductions.  Husband looks over the return carefully, checks everything, and then happily signs.  Together they write a check from their joint account to pay the balance due.  All is well.

Except a couple of years later, out of the blue and after their divorce was finalized, Husband learns that Wife never actually mailed in the check.  She filed the return, sure, but instead of paying the balance due she cashed the check herself and used the proceeds to keep her business afloat.  Or maybe she bought her grandmother a new kidney, or gambled it all away.

It doesn’t matter, really, how she spent the money or whether she meant good or ill because now the tax man can collect the entire amount due from the ex-Husband.  Such is the price of signing a joint tax return.

But wait, there’s still a chance to set things right: Husband may have a defense in equity.  IRC §6015 allows the IRS to release him from the joint pledge to pay when, given all the particular facts, it would be just and right to do so.  Not even the two year limitation limits this discretion.

But equitable relief isn’t automatic, not by a long shot.  There are well-established criteria to be met, arguments to be advanced, documents to be produced.  And while going it alone is always a possibility, the chance of success increases dramatically with professional help.

This article is for informational purposes only and does not constitute legal advice.  You should consult a qualified attorney before taking any action.