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Joint or Separate Returns?

Should I file a joint tax return with my spouse?

One of the many questions asked by individuals going through the divorce process, especially during tax season, is: "Should I file a joint tax return with my spouse?" The answer to this question is relatively simple. At the end of the tax year, the parties' marital status determines their option concerning filing federal income tax returns. If a couple is divorced at any time during the year, including December 31, they are considered single for the purpose of filing taxes. However, if the couple is still married at the end of the tax year, they may either file jointly or file their taxes under the status of married filing separately.

Even in the midst of a divorce, many married people file joint returns because it saves them money. However, the tradeoff for lower taxes is joint liability on the return. Despite this minor downfall, many prefer to file jointly instead of married filing separately because this filing provides fewer tax benefits than filing joint returns. For example, taxpayers who file as married filing separately are not eligible to claim the following tax benefits:

  • Tuition and fees deduction
  • Student loan interest deduction
  • Tax-free exclusion of U.S. bond interest
  • Tax-free exclusion of Social Security Benefits
  • Credit for the Elderly and Disabled
  • Child and Dependent Care Credit
  • Earned Income Credit
  • Hope or Lifetime Learning Educational Credits

Since joint tax returns are favored, for the foregoing reasons, parties who file joint returns are permitted to amend filed joint tax returns within three years from the due date of the original returns if any discrepancy is discovered.

One issue that often arises in divorce is one spouse who refuses to sign a joint tax return. There are two ways in which a situation such as this may be handled, depending upon the circumstances. Whether the Internal Revenue Services accepts a joint tax return is determined by the parties' intent and the surrounding circumstances. When a couple has historically filed a joint tax return, and one party withholds his or her signature, the other spouse may file a joint tax return regardless, and the Internal Revenue Service may accept this return. See Federbush v. Commissioner, 34 T.C. 740 (1960). In Federbush, it was determined that the tax return was a joint filing even though the wife refused to sign it. Id. This determination was reached because the wife's refusal had nothing to do with the return contents but was related to other marital problems. Id.

On the other hand, even if signed by both spouses, a joint return may not lead to both spouses being held accountable for its contents, especially what one spouse is forced to sign the return against his or her will. For example, in Anderson v. Commissioner, 47 T.C.M. 1123 (1984), it was determined that the wife did not intend to file a joint tax return but signed it only when ordered to do so by the divorce court. In Anderson, the wife had no income and was not even required to file a tax return. Id. She resisted signing the joint tax return because she had concerns about the appropriateness of her husband's deductions. Id. Her concerns proved to be justified when the I.R.S. found deficiencies in the couple's return. Id. The wife was relieved of any liability for the deficiency because it was determined that she did not intend to file a joint return with her husband. Id. Additionally, when one spouse is forced to sign a joint return under threats of abuse or violence, a spouse may use these facts as a defense to being held jointly liable for any deficiencies or discrepancies on the return.

Not only do joint tax returns come with potential liability, but they may also result in substantial refunds. Although a federal tax refund check may be drawn to the order of both parties, both parties do not necessarily have equal ownership rights to it. It is the source of the overpayment which determines the ownership of the refund. Overpayment by a married couple filing a joint tax return is owned by each spouse separately to the extent that they contributed to the overpayment. Thus, one of the potential hazards associated with filing jointly is that one spouse may appropriate a tax refund that the other spouse is entitled to. When funds are paid to the non-entitled spouse in error, the I.R.S. may grant the spouse who was entitled to the funds a credit on their future return if the error is timely pointed out to the I.R.S. In summary, the ownership of a joint federal tax refund belongs to the person who made the overpayment and not necessarily the person who earned the income.

With the above in mind, the answer to the above-cited question becomes more complicated. If your divorce has yet to be finalized and you expect that your spouse may be making intentional errors on your joint tax return, speak with your divorce attorney for specific direction on how you should proceed. Additionally, as with all tax and other complex financial matters, be sure to consult with a qualified C.P.A. or financial planner before making any significant financial decisions.

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