When couples file joint income tax returns, the IRS treats them as a single taxpayer. Therefore, their tax liability is a result of their combined taxable income and deductions. In addition, the spouses are jointly and severally liable for the tax owed pursuant to such return, meaning that they are both responsible for full payment of the tax due. While this is generally not a problem for couples, there may be some difficulties when it turns out that one of the spouses failed to report certain income, creating a substantial debt. Despite the fact that the other spouse may have been unaware of this underreporting and not responsible for the unpaid taxes, he or she is obligated to pay the resulting liability along with interest and penalties. However, Section 6015 of the Internal Revenue Code (the “Code”) provides two general forms of relief for spouses (or ex-spouses) in such a situation, called “Innocent Spouse Relief” and “Separation of Liability Relief.”

If a spouse qualifies for Innocent Spouse Relief, he or she spouse will be completely relieved of any unpaid tax liability if such spouse did not know of the underreporting, and there were no red flags that should have alerted the spouse to the fact that the couple’s income taxes were either not being paid or were being underreported. In addition, the spouse requesting relief must show that, due to the facts and circumstances surrounding the tax liability, it would inequitable to hold the requesting spouse liable for the tax deficiency. The factors that the IRS will look to in determining whether this requirement is met include the spouse’s involvement in family finances, the spouse’s level of sophistication in financial matters, any instances of spousal abuse, and whether the individuals are still married.

Even if an individual is not eligible for Innocent Spouse Relief, he or she may be entitled to Separation of Liability Relief. If so, the individual’s liability is limited to the portion of the tax deficiency that is properly allocable to him or her. In effect, the IRS will treat the electing individual as if she filed separately from her spouse. To be eligible for this relief, the electing individual must not have had actual knowledge of the item giving rise to the tax deficiency at the time of signing the return. This is distinguishable from the knowledge requirement of Innocent Spouse Relief, in that the only consideration is what the spouse actually knew; whether or not there were any signs that tax would be underreported or underpaid is irrelevant. In addition, the IRS requires that there was no fraudulent scheme between the spouses to avoid the payment of taxes.

Innocent Spouse Relief and Separation of Liability Relief are important tools that are available to taxpayers who are unjustly held liable for their spouses’ tax problems. It is important to note, however, that any request for relief must be filed within two years of the date the tax liability was assessed.