Joint Liability Problems

• If you and your spouse file taxes jointly and both sign the return, you are both liable for the total amount of tax owed, whether past or current, no matter which party incurred the debt. In some states, called community property states, if your spouse has IRS debt from before the marriage, you are considered liable for half of his past or present debt. Community property states include Arizona, Idaho, California,Louisiana, New Mexico, Nevada, Washington,Texas and Wisconsin. Once you file jointly in a community property state, the IRS can withhold money from your joint refund, garnish either spouses' wages or garnish funds from a joint bank account to pay back the past debt.
  
  

Prevention: Filing Separately

• Filing tax returns separately in cases where one spouse has past tax debt is one way to prevent the innocent party from being held liable for the other spouse's owed taxes. This is true even in community property states. It is always an option to file separately, even if you are married. The only issue with this is that most taxpayers will pay more tax if they file separately than they will filing a joint return. Many benefits that unmarried taxpayers who file separately receive are not given to married persons who file separately.
  
  

Solutions

• If you have already filed taxes jointly with your spouse and realize that he underpaid his taxes or owes past taxes that you will be held liable for, there are a few ways you can avoid having to pay for his debts. The innocent spouse rule is a law that makes tax relief available to those who file joint returns where tax owed by a spouse is underreported. If the other party had no knowledge of the mistake when he signed the return, then he can receive relief from paying his spouse's taxes. There is also a separate liability election for couples who are separated, divorced or widowed that essentially severs the decision to file jointly. Finally, there is what is called "equitable relief" for those whose spouses failed to pay taxes. In all these cases, you have to apply to the IRS, with no guarantee you'll be approved.
  
  

Considerations

• Avoid opening joint bank accounts or filing taxes jointly if your spouse has past IRS debt. If you have any doubts about whether a tax return is correct or not, do not sign it. If you absolutely do not want to be held liable for your spouse's tax debt, file separately. If your spouse owes taxes but you will still benefit financially by filing jointly, this could be an option. If you are unsure of which method of filing will make the most financial sense, discuss it with a trusted tax expert.