When couples file joint federal income tax returns using a “married” filing status, the IRS treats them as a single taxpayer. Their tax liability is calculated based on their combined taxable income and deductions. What many spouses filing joint returns may not understand is that each spouse is “jointly and severally liable” for the tax owed pursuant to their joint return, meaning that they are both responsible for full payment of the tax due. While this is generally not a problem for couples that pay their taxes in full at the time of filing their return, there may be some difficulties when it turns out that one of the spouses failed to report certain income, creating a substantial debt. One would think that because the other spouse may have been unaware of this underreporting, he or she would not be responsible for the associated unpaid taxes. However, this is incorrect; in fact, this ‘innocent’ spouse is obligated, along with the other spouse, to pay the resulting liability along with interest and penalties.

Fortunately, relief may be available to individuals who have been victimized by their spouses’ failure to report taxable income and pay their tax liabilities in full. Section 6015 of the Internal Revenue Code provides two general forms of relief for such spouses (or ex-spouses), which are commonly referred to as “Innocent Spouse Relief” and “Separation of Liability Relief.”

Generally, an individual will qualify for Innocent Spouse Relief, thereby being completely relieved of any unpaid tax liability, if he or she did not know of the spouse’s underreporting, and there were no red flags that should have alerted him or her to the fact that the couple’s income taxes were not being reported and/or paid. In addition, the spouse requesting relief must show that, due to the facts and circumstances surrounding the tax liability, it would be inequitable to hold him or her 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. The more factors that exist indicating that the requesting spouse was not responsible for the tax underreporting or underpayment, the more likely it is that he or she will be granted relief and exonerated from any tax liability.

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 will be limited to the portion of the tax deficiency that is properly allocable to him or her, and not to his or her spouse. In effect, the IRS will treat the electing individual as if he or she filed separately from her spouse. To be eligible for this relief, an 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 IRS will only consider what the spouse in question actually knew; whether or not there were any implications 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 that in many instances, relief cannot be requested more than two years from the date the tax liability was assessed.