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When are you not liable for your spouse's taxes?

Each year, many married taxpayers are surprised to see that an expected refund check is a bit smaller than anticipated. This is often the result of an offset for an outstanding liability of some sort attributable to one spouse, even though the other spouse has no connection to the obligation.

Here's how it happens: Congress has authorized what's known as the Treasury Offset Program through the Financial Management Service (FMS). Under the Offset Program, refunds may be reduced to pay any past-due child or spousal support, federal non-tax debts (such as past due or defaulted student loans), state income tax obligations, or unemployment compensation debts owed (usually due to amounts paid out and later discovered to be fraud).

When married taxpayers file joint tax returns, the IRS treats them as one taxpayer. Any refund due to married taxpayers is treated as belonging to both taxpayers and not apportioned between the two. Similarly, any offset is treated as belonging to both taxpayers and is not apportioned between the two. However, if the debt or obligation that has triggered the offset only belongs to one taxpayer, it technically remains the debt of that taxpayer and does not transfer to the other spouse. The other spouse may be entitled to relief.

The first step in figuring what relief you might be entitled to is to determine the source of the offset. The affected taxpayers will receive a notice from FMS that states the original refund amount, any offset amount, the name of the agency receiving the payment, and the address and telephone number of the agency. If you are named on the notice but do not believe you owe that amount or believe the amount is incorrect, then you need to contact the agency on the notice.

If an offset is applied to your refund, but you do not receive a notice from FMS explaining why, you need to contact them and find out the details. To reach them, call 800-304-3107 during weekdays, 7:30 a.m. through 5 p.m. CT. It's important to figure all this out beforehand, because requesting relief in anticipation of an offset -- when no offset actually exists -- will slow down the processing of your tax return.

Once you know the source of the offset, you can make a determination about filing for relief. If you're not responsible for the debt, you may request a portion of your refund by filing a federal form 8379, Injured Spouse Allocation with your federal tax return. Write "INJURED SPOUSE" on the top left corner of your return. You have to file a federal form 8379 for each year you are requesting relief; if you file an amended return, you must attach the federal form 8379 to the amended return.

You will need to provide the Social Security numbers of both taxpayers on the federal form 8379. You also need to provide certain financial information about each taxpayer, including whether credits and income should be allocated to one spouse over another. The IRS will then figure the portion of the refund attributable to each spouse (it is not generally a 50/50 split) and refund accordingly.

Again, it's important to confirm both the existence and the type of liability before filing the federal form 8379. The form won't help you if the obligation is a joint obligation. For example, if married taxpayers owed state or federal taxes in 2008 that they didn't pay, and it triggered an offset against any 2009 refund, that amount would not be severed. It is a joint liability, and any apportionment would not apply if the taxpayers are still married.

Take note that this is not the same as "innocent spouse" relief. Innocent spouse claims allow for the relief of joint and several liability for a joint tax obligation. This happens when the underpayment is a result of the actions of one spouse, and generally, the other spouse had no idea it was happening. In most cases, you cannot request innocent spouse relief if you continue to file a joint tax return or continue to live together.

Think carefully before you file a joint return with your spouse. If you have concerns about outstanding liabilities or about how your spouse reports his or her income, you may want to file a return as married filing separately (check out your filing options here). However, if you do file together and discover a problem that is not your responsibility, such as an offset, relief is available. If you need more information, contact the IRS (800-829-1040) or consult with your tax professional.

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