During the preparation of tax returns or representation of a client for an Internal Revenue Service (IRS) issue, Enrolled Agents should be aware of the Injured Spouse Allocation. The Injured Spouse Allocation is used to protect one spouse’s share of an overpayment (IRS refund) from being applied to a past-due obligation. Enrolled Agents should use this tool before considering an offer in compromise if there is a possibility a client’s IRS refund may be offset.
An injured spouse claim arises when a joint tax return is filed, the return shows an overpayment of tax, and one of the spouses has a legally enforceable past-due obligation for which the IRS refund could be offset. Legally enforceable past-due obligations include federal tax, state income tax, child or spousal support, or a federal nontax debt, such as a student loan. An injured spouse claim should be filed when there has been or is expected to be an offset for a past-due obligation.
An injured spouse, the spouse that does not have the past-due obligation, can submit a claim by filing IRS Form 8379, Injured Spouse Allocation. Form 8379 can be filed with the original submission of the jointly filed income tax return, with an amended tax return or by itself. An injured spouse claim should be filed with the original income tax return or amended tax return if an overpayment offset is expected. If an offset was not expected prior to submission of the original or amended tax return, the claim can be filed by itself after the offset has occurred.
Form 8379 is used to properly determine the amount of tax owed and overpayment due to each spouse. The form allocates exemptions, income, deductions, credits, tax and tax payments as if each spouse filed separately. Each item should be properly allocated based on which spouse would have reported the item if separate returns were filed. Certain items that do not clearly belong to either spouse should be divided equally. If the taxpayers live in a community property state additional rules on allocation may apply. Form 8379 does not calculate the allocated refund as this is determined by the IRS. Once the IRS determines the amount, the injured spouse’s share of the overpayment will be refunded and the non-injured spouse’s share will be offset against the past-due obligation.
An injured spouse claim should not be confused with a claim for innocent spouse relief. An injured spouse claim only allocates an overpayment, where as a claim for innocent spouse relief can relieve part or all of a joint tax liability. A taxpayer may qualify for innocent spouse relief if:
- There is an understatement of tax because their spouse omitted income or claimed false deductions and the taxpayer did not know or have reason to know of the understatement
- There is an understatement of tax and the taxpayer is divorced, separated, or no longer living with the spouse,
- It would not be fair to hold the taxpayer liable for the tax.
Overall, if you are an Enrolled Agent that provides tax preparation or tax resolution services you should be familiar with injured spouse and innocent spouse relief claims. If you would like to learn more about these topics you should consider taking an Enrolled Agent course that focuses on taxpayer representation and the IRS collection process.
