Understand Those Injured Spouse Claims
Injured spouse applications are commonly filed to protect a spouse from another spouse’s debt. The debt can be for enforceable past-due federal tax, state income tax, state unemployment compensation debts, child or spousal support, or a federal nontax debt, such as a student loan.
To be considered an injured spouse, the taxpayer must have made and reported tax payments, such as federal income tax withheld from wages or estimated tax payments, or claimed a refundable tax credit, such as the earned income credit or additional child tax credit on the joint return, and not be legally obligated to pay the past-due amount.
Those who live in a community property state, have special rules as detailed in IRS Publication 555, Community Property.
If an individual files a joint return and one party is not responsible for the debt (but is entitled to a portion of the refund) a taxpayer may request his or her portion of the refund by filing Form 8379, Injured Spouse Allocation.
During the 2014 and 2015 calendar years, IRS closed 730,956 injured spouse cases. A recent TIGTA audit was conducted to determine whether taxpayers’ applications for relief were processed accurately found that 91% were accurately processed but fell short of the 45-day processing time frame. In these cases IRS was required to pay interest estimated at $2.7 million to taxpayers. The average processing time was 102 days.
Nine percent were not processed correctly, so this is a heads up when dealing with the injured spouse issue. If your client does not receive an amount that appears correct, please take the time to review the application for completeness.
Also of note are the instructions, which at the time of the audit report had not been updated to inform taxpayers that a claim can be filed for prior years or that there is a six-year statute of limitations on filing a claim for nontax debt and a three-year statute of limitations for tax debt.
Mistakes may delay your refund or result in notices being sent to taxpayers include:
- When filing Form 8379 separately, do not include a copy of your joint tax return. This will prevent delays in processing your allocation.
- Make sure to enclose copies of all Forms W-2 and W-2G for both spouses, and any Forms 1099 showing income tax withheld.
- When you file Form 8379 with a joint tax return or amended joint tax return, enter “Injured Spouse” in the upper left corner of page 1 of the joint return.
- Any dependency exemptions must be entered in whole numbers. Do not use fractions.
- Items of income, expenses, credits and deductions must be allocated to the spouse who would have entered the item on his or her separate return.
The full TIGTA report can be found here.