If husband and wife file MFS (Married Filing Separately) can the wife be held liable for the husband's tax liability?

The background situation ias that the husband has a tax liability from an early 401(k) distrubution (that the wife did not benefit from).

Are there any other potential pitfalls I need to be aware of here?

UPDATE: The state in question is Illinois.

asked 01 Nov '09, 03:52

TaxQueries's gravatar image

TaxQueries ♦♦
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edited 01 Nov '09, 18:30


Getting tired Brett? :)

If this is not a community property state, she claims her income, he claims his. Just remember, MFS (except maybve in Ohio) is the worse filing status as it limits a whole boatload of things.

Helen, EA in PA

Additional - Ohio is NOT a community property state, but the state laws make MFS a lot more friendly for the state taxes and you have to play off the best way!

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answered 01 Nov '09, 12:14

Helen%20EA%20in%20PA's gravatar image

Helen EA in PA
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edited 01 Nov '09, 19:18

No, just trying to give others a chance to take 1st crack. Yes, I agree with you, but sometimes it's "priceless" not the have the joint & several liability that goes with married filing joint. Ohio is not a community property state. The community property states are all west of the Mississippi.

(01 Nov '09, 13:37) Brent Berkman
1

I flunked Geogrphy...Ohio is E of the Missippi?

(01 Nov '09, 15:30) SandySea

I know, but the "community property states" are west!

(01 Nov '09, 21:49) Brent Berkman

Excellent question! Again, I would like to give one of the other participants a chance to answer.

Additional question to consider: What effect would occur if taxpayers resided in a community property state?

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answered 01 Nov '09, 06:41

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Brent Berkman
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Would be great Brent for others to answer and they certainly can, but if they choose not to...well anyways. Depending on how much the husband owes may certainly be worthwhile to file MFS to protect the spouse. Also innocent or injured spouse relief sometimes can come into play

(01 Nov '09, 13:23) SandySea

Yes, it could be well worth the extra tax cost of not having to go through the "innocent spouse" process.

(01 Nov '09, 13:39) Brent Berkman
1

absolutely! seems lots of my clients who have self employed spouses find themselves in a mess and file seperately

(01 Nov '09, 14:45) SandySea

As a side note - I have never really understood WHY one spouse would want to invoke Innocent Spouse relief in order to get/keep THEIR share of the refund.

When a tax debt is outstanding, penalties and interest continue to accrue - the debt continues to increase. Hence, the sooner the debt is satisfied the less it costs the COUPLE in the long run. Not to mention that IF the IRS, or a state agency, levies one spouse's wages, does not the couple, or family, suffer as a whole? Isn't it better to get the (legitimate) tax debt extinguished as soon as possible? Of course, I understand if there is a legitimate dispute about the tax debt, but that is NOT what I'm talking about.

And isn't the benefit of getting Innocent Spouse Relief negated to some degree by the costs of application and representation, not to mention the time away from work, and the associated lost wages, should the taxpayer decide to do it themselves?

Just curious what others think about this and what you're seeing in your area.

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answered 11 Feb '10, 14:27

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EAgent
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Innocent or Injured Spouse Many married taxpayers choose to file a joint tax return because of certain benefits this filing status allows that generally reduce the income taxes you are required to pay. When you file a joint return, the law generally makes both you and your spouse responsible for the entire tax liability even if you later divorce or separate. However, in certain circumstances it is unfair that the obligations of one spouse be applied to another. Accordingly, certain relief provisions are available to married, divorced or separated taxpayers that qualify.

Are you the “victim”? Did you file your taxes jointly with your spouse? Were you denied your tax refund? Are you being asked to pay your spouse or former spouse’s obligations? Is it unfair for you to be held liable for these obligations? Injured Spouse Relief

If you filed a joint return and all or part of your share of the overpayment was, or is expected to be, applied against your spouse’s past-due debts, you may be able to obtain relief when:

You have made, or reported tax payments, claimed a refundable tax credit or You are not legally obligated to pay the past-due amount Other Relief Provisions

In some cases, a spouse will be relieved of the tax, interest, and penalties on a joint tax return. Three types of relief are available.

Innocent spouse relief. Separation of liability. Equitable relief. Innocent Spouse Relief

By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse or former spouse.

You must meet all of the following conditions to qualify for innocent spouse relief.

You filed a joint tax return; There is an understated tax on the return that is due to erroneous items of your spouse (or former spouse; You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed; Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax Separation of liability

Under this type of relief, the understated tax (plus interest and penalties) on your joint return is allocated between you and your spouse (or former spouse). The understated tax allocated to you is generally the amount you are responsible for. This type of relief is available only for unpaid liabilities resulting from the understated tax (refunds are not allowed). The relief discussed here does not apply to any part of the understated tax due to your spouse’s erroneous items of which you had actual knowledge except where you were the victim of spousal abuse or domestic violence.

Equitable Relief

If you do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief.

You may qualify for equitable relief if you meet all of the following general conditions.

You are not eligible for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law; You have an understated tax or an underpaid tax; You have not paid the tax; Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated or underpaid tax; You did not transfer assets to one another as a part of a fraudulent scheme, or to avoid tax or payment of taxes

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answered 11 Feb '10, 15:16

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Mitch Helfer
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Mitch gave a rather detailed answer, but it does NOT address my original position. A married couple that lives together shares costs of living and expenses. When the husband's wages are garnished because of a prior tax liability does not the wife suffer - yet there is NO innocent spouse relief here.

WHY would one spouse NOT want to see the other's obligation satisfied when NOT doing so means that the first spouse is under the gun for an extended period of time.

NOTE - I would recommend it if the statute for collections was close to expiring.

(21 Feb '10, 04:12) EAgent

Wisconsin is a community property state

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answered 10 Feb '10, 03:08

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Bill Winters
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EAgent: Why would both spouses want to be dragged down by one's mistakes? Isn't it better, especially in a situation where you married someone who already had this debt, to keep one person's record clean, their property out of the reach of the IRS, and that person's paycheck free from being garnished?

In addition, some couples keep their finances separate anyway.

Maybe your assumption is that the husband always makes more money than the wife. Not true. Anyway, my take is, you brought this mess into the marriage, you clean it up. May sound harsh to some, but it is a pragmatic approach.

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answered 28 Sep '11, 17:10

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gmb
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Asked: 01 Nov '09, 03:52

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Last updated: 28 Sep '11, 17:10