Friday, December 12, 2008

Joint Filing, Joint Liability

The Internal Revenue Code is an amazing piece of work. Consider the case of a married couple filing jointly. Let’s suppose one spouse earns $120,000 in a given year and the other spouse earns $0. After filing their “married filing jointly” tax return they incur a $14,800 tax liability. For whatever reason the couple fails to pay the tax for a couple of years. Penalties and interest have now caused the liability to grow to over $20,000. The couple decides to call it quits on the marriage and they get divorced.

The spouse who earned $0 has been forced to re-enter the workforce and is now making $31,000 per year all of which is consumed with monthly obligations. One day this spouse receives a notification in the mail they owe the IRS over $20,000 and they want payment immediately! What do they do?

This is a very real situation and happens more times than people may realize. The fact of the matter in this situation is that the IRS views each spouse liable for the entire tax amount based on the joint filing status! There are a few options the disadvantaged spouse has in this situation. This requires the help of a true tax professional.

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