When the IRS comes looking for you due to unpaid taxes, in some cases, the problem may have arisen because a spouse or former spouse understated the amount of tax that was owed on a jointly filed return. The good news is that, depending on the circumstances, an innocent spouse can sometimes obtain relief from liability for a jointly-filed return by seeking Separation of Liability Relief. If the relief is granted, the understatement of tax will be allocated between the spouses. Your tax liability will consist only of the portion of understated tax that was allocated to you.
How Understated Tax Is Allocated
Allocating understatement of tax is ultimately done by the IRS; however, the following are some general guidelines:
- Generally, income and deductions should be allocated in the same manner that they would have been had you and your spouse filed separate returns.
- Wages and salaries should be allocated to the spouse who performed the services.
- Business or investment incomes should be allocated to the spouse who owns the business or investment that produced the income. If both spouses share an ownership interest, the income should be allocated in proportion to each spouse’s ownership interest.
- Income from jointly-owned property should be allocated equally between spouses unless evidence indicates that doing so is inappropriate.
- Deductions relating to a business or investment should similarly be allocated to the spouse who owns the business or investment, or in proportion to ownership interests if both spouses held an interest.
- Other deductions should be allocated equally between spouses.
- If there are any erroneous items that you knew about when filing the joint return, these must be pointed out. You remain jointly and severally liable for any erroneous items that you had knowledge of.
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