Picture this scenario: you are newly married, enjoying your first year of marital bliss, and come tax time, you proudly sign your first income tax return as a couple. With the joint financial picture reported on the return, you are expecting a tax refund of $6,500.00… yay! Visions of new furniture or a beach vacation dance in your head. Unfortunately, instead of getting a check for $6,500, you get a letter saying that the tax refund has been confiscated and applied to a past-due 1040 balance owed by your newly minted spouse. OUCH! Believe it or not, this scenario is more common than one would expect or hope! Fear not, however, as there is a way to handle the situation that will protect the spouse who did not owe the past-due taxes: the Injured Spouse Relief program.

I’m sure you’ve heard of the Innocent Spouse or Injured Spouse Relief programs offered by the Internal Revenue Service, but many don’t know what they are. Last week’s blog article provided some guidance on the Innocent Spouse program and this week, we’ll share some ins and outs of the Injured Spouse Relief program.

As you may be aware, the IRS can seize a personal income tax refund for application to any debt owed to a federal agency, state unemployment compensation or income tax debts, and even past-due child support (it’s one of those pesky asterisks I am always talking about that come into play on the proverbial tax field). The IRS recognized that it isn’t fair for an innocent person’s money to be applied to someone else’s debt, so the Injured Spouse Relief program was born.

To submit a claim as an “injured spouse,” there are some requirements that must first be met:

• The injured party had to have filed a joint return with the spouse,
• The joint tax refund was confiscated by the IRS and applied to the spouse’s past-due debts, and
• The injured party was not responsible for the debt.

While those in a community property state may qualify for this relief, a separate set of rules must be considered, which can be found here: Community Property.

It’s important to note that Injured Spouse Relief can be requested with the submission of the actual annual income tax return which is the center of the concern. In our example summarized at the start of this article, had the spouse with the past-due 1040 debt been upfront with the new spouse and the tax return preparer, the preparer could have drafted the Injured Spouse Relief petition and included it with the tax return when it is sent to the IRS for processing. While that will delay the processing of the return, the injured spouse will eventually receive their rightfully owed portion of the tax refund claimed.

When the IRS confiscates a tax refund, a notice is issued by the IRS or the U.S. Treasury’s Bureau of Fiscal Service (one of the lesser-known federal departments, but one we should all invest more time learning about), providing the details of the funds confiscated, the agency they were sent to, and the contact information for that agency. Upon receipt of the notice, it is imperative that the injured spouse acts quickly as the request for Injured Spouse Relief must be submitted within three years from the date the return was filed, or two years from the date the tax was paid… whichever was later. While that sounds like a long time, as we all know, it is easy to get busy with daily life. What starts as “I need to sit down and look into this further to see if I can somehow get my share of the refund back” turns into a stack of dusty, forgotten-about papers at the back of a desk drawer.

If you are the injured party, the first recommendation I can make to you is to breathe! Though this situation is a massive inconvenience, remember that there is always a solution. Reach out to a trusted and experienced tax professional for their help. If you have a copy of the return and your W-2 and financial records for the year, he/she should be able to compile and submit the Injured Spouse Relief petition within a matter of a few days. When it is sent to the IRS, make sure it is sent via certified mail so you can track its delivery. Then comes the most challenging part of all: waiting for a response.

If you or one of your clients qualifies to claim Injured Spouse Relief but want someone experienced to handle it, reach out to the Golden Lion Tax Solutions team. We have over 24 years of experience handling all tax debt concerns before the IRS and state tax departments, including how to successfully optimize the results of an Injured Spouse Relief petition. Let us put our knowledge to work for you!

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For help with your tax debts, email contactus@goldenliontaxsolutions.com or call 833-LION-TAX (833-546-6829)

Disclaimer: There are requirements that must be satisfied in order to qualify for some of the tax solutions we discuss on our website. Not all of our services will be suitable for every client. Golden Lion Tax Solutions is here to help you find the most appropriate solution to fit your situation.