Separating your IRS tax debt from a former spouse is complicated, especially if you previously filed joint returns with unexpected understatements. You want to make sure you’re not incurring IRS tax debt from your former spouse’s income or assets. If your tax return includes an understatement, meaning you reported less tax than you actually owe, it’s important to understand how the IRS determines what you and your former spouse each owe.
A tax understatement most often results from incorrect deductions or from unreported income, such as omitted wages or income from a side job. If the IRS calculates that you owe more than your joint return claims you owe, how does the IRS divide the additional tax amount between you and your former spouse?
How Does the IRS Divide Unreported Income and Improper Deductions?
The IRS uses Separation of Liability Relief to divide IRS tax debt understatements between former spouses on joint returns. This means that if your former spouse underreported income or claimed improper deductions, you can request relief to separate your tax liability. The IRS will then split the additional tax debt based on each person’s individual income and tax contributions.
The IRS separates liability by:
- Reallocating the understatement as though you and your former spouse had filed separately.
- Charging taxes on unreported income entirely to the person who earned it.
- Splitting incorrect deductions based on which person benefited from or initiated the item.
The IRS’ Innocent Spouse Relief completely absolves you of the tax debt if you didn’t know anything about the errors. However, if the IRS can prove you had actual knowledge of the understatement when you signed the return, they can skip the allocation and charge you both equally for the specific item in question.
Highland Tax Group Can Help Manage Incorrect Joint Returns
Dealing with previous joint returns after a divorce or separation can get tricky. Make sure you’re not incurring unnecessary IRS tax debt that belongs to your former spouse. The experts at Highland Tax Group can help minimize your tax liability and maximize your tax benefits as you and your former spouse work to separate your finances.