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Tax Question: Unhappily Ever After

All this week I'll be answering last-minute tax questions as part of Marketplace Money's special report on tax season. This next question comes from Joan from Oak Park, Michigan:

My ex husband was a 1099 employee. In 2008 we accrued a large tax debt because he did not withhold. We separated in 2009 and we officially divorced in January 2010.

He has a payment plan with the IRS, and he agreed in our settlement to pay the back taxes himself.

But in 2009 the IRS seized my refund and I expect they will do the same this year. I bought a house by myself in 2010 and am qualified for the new homeowners refund in addition to a small refund for my withholding. Is there a way for the IRS to let me keep my refund?

ANSWER: When married couples file a joint tax return they may be subject to something called "joint and several liability," that is, both spouses are liable for the debt. The IRS is not terribly interested in what your separation/divorce settlement said about this tax debt. When you signed the joint return, you became liable for the taxes.

However, there is the possibility of relief from the joint liability. You can file Form 8857 and request Innocent Spouse Relief. There are three different types of relief that you can be requested. There is also a time limit to request the relief - it must be within two years from the time the IRS started collection activity by taking your refund. It is generally not easy to get the relief from the IRS. This might be an area where you could seek out the services of a tax professional such as an enrolled agent who might be able to guide you through this process.

Frank Degen, EA is a self employed practitioner in Setauket (Long Island), New York. He has a Bachelors degree in mathematics from Iona College and a Masters degree from Johns Hopkins University. He became an Enrolled Agent in 1984. Degen, served a three-year term on the Internal Revenue Service Advisory Council (IRSAC) and was Chair in 2009.

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Frank,

Thanks so much for your help so far with taxes on Marketplace Money, and your "What's in Your Wallet?" answer was fun.

So, I've got a question... I usually fill out my taxes through Turbo Tax, and answer the questions and figure I've done my thing when I submit (and usually pay money) and consider myself done.

But this year, I had filed and two days later I unearthed a 1099-INT from cashing EE treasury bonds in 2010 with a thousand and a half worth of interest I forgot to claim. So, I scrambled and googled, and I've filled out a 1040A which I now need (instead of the 1040EZ I submitted electronically through TurboTax) and am going to sit down and work out the 1040X tonight. When do I need to submit this, and when should I send the amount that I owe–and will they cancel my refund once I get this?

Thanks!
- Andrew

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