By: A.J. Cook


A joint tax return obligates both husband and wife for all income taxes owed for that year, including what the Internal Revenue Service digs up later.

The problem usually occurs after the couple are divorced. Because both are liable, the agency doesn't concern itself with who should pay; it collects from the most convenient one. A newly divorced man has assets, but his ex-wife doesn't. He pays. A traveling truck driver is hard to find, but his ex-wife receives a weekly payroll check and works in one place. She pays.

Prior law gave protection to the innocent spouse in only a few situations. A new law, however, is available more frequently.

Two new provisions help a person avoid her ex-spouse's tax obligation: If holding the innocent spouse liable would be inequitable, or she elects to be treated as if she filed a separate return.

Holding Spouse Liable Inequitable

The IRS would probably consider it inequitable to hold the innocent spouse liable if she meets the following requirements: (1) The couple is separated or divorced; (2) the innocent spouse didn't know or have reason to know taxes were due; and (3) the innocent spouse would suffer economic hardship. Here there would be economic hardship to the ex-wife:

• Before marriage she was financially independent; after, she was financially worse off.
  
• While married she continued her pre marital frugal habits, and the deficiency would now have to be paid from her modest assets.
  
• While married she borrowed $5,000 to pay taxes on the couple's joint return. Without telling her, her husband spent the money on himself.
  

Separate Return Election

The law provides that a former—or soon to be former - spouse may qualify for a separation of liability if she had no knowledge of the tax underpayment. These illustrate the issue of knowledge:

• The innocent spouse didn't know or have reason to know her husband earned $10,000 from freelance writing that wasn't reported on their joint return. If she elects separate return liability, she will owe none of her husband's deficiency, but she might owe taxes as a separate return filer.
  

• Margaret Ann Carpender told the court her husband had reported personal costs as business expenses. She asked him about them, but he brushed her off. She claimed she couldn't demand answers because of her fragile emotional state caused by her daughter's and father's deaths. She doesn't qualify because her expense questions show she knew of the problem.
  
  

The Moral:  Innocent spouse's hear no evil, see no evil and speak no evil.

The new law is a major step in the right direction. But, as the Carpender case shows, it still isn't always fair.



A.J. Cook is a lawyer and CPA. His tax column appears weekly in numerous newspapers. Why isn't it published in your hometown newspaper? Ask its Business Editor to subscribe.

Copyright © 1987-2001 A.J. Cook All Rights Reserved
This information is not intended for use without professional advise.
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Released 8-28-00