Liability and Relief Flashcards Preview

Fast Forward Academy Flash Cards > Liability and Relief > Flashcards

Flashcards in Liability and Relief Deck (15)
Loading flashcards...
1
Q

Joint and Several Liability

How is a married taxpayer liable?

A

A married taxpayer is jointly and severally liable for the tax and any additions to tax interest, or penalties that arise because of a joint return, even after divorce.

2
Q

What does joint and several liability mean?

A

Joint and several liability means that each taxpayer is legally responsible for the entire liability. One spouse may be held responsible for all the tax due, even if the other spouse earned all the income or claimed improper deductions or credits. Relief from joint liability, such as innocent spouse relief, is different from injured spouse relief.

3
Q

Relief From Joint And Several Liability

What are the three types of relief available to married persons who filed joint returns?

A
  • Innocent spouse relief - A taxpayer may be relieved of responsibility for paying tax, interest, and penalties because a spouse or former spouse failed to report income, reported income improperly, or claimed improper deductions or credits.
4
Q

What form will a taxpayer use to request relief?

A

Answer: Form 8857

5
Q

A taxpayer will use Form 8857 to request relief provided he meets all of the following conditions to qualify:

A
  • The spouses must have filed a joint return with an understatement of tax directly related to the spouse’s erroneous items.
  • The taxpayer seeking relief can establish that at the time he signed the joint return, he did not know and had no reason to know, that there was an understatement of tax
  • Taking into account all the facts and circumstances, it would be unfair to hold taxpayer liable for the understatement of tax.
6
Q

Separation of liability relief -

What happens when a couple is no longer married, widowed or legally separated and have not been members of the same household for a 12-month period?

A

For those who are no longer married, widowed or legally separated and have not been members of the same household for a 12-month period. The understated tax (plus interest and penalties) on the joint return is allocated between spouse (or former spouse). The tax allocated is generally the amount the taxpayer is responsible to pay. This type of relief is available only for unpaid liabilities resulting from the understated tax. Refunds are not allowed.

7
Q

What is Equitable Relief?

A

For a properly stated but underpaid tax. If a taxpayer does not qualify for other forms or relief, the taxpayer may still be relieved of responsibility for tax, interest, and penalties.

8
Q

What is Injured Spouse Relief?

A

Relief from a separate liability of the other spouse on a joint tax return. Injured spouse relief is when one spouse’s individual liability, if collected, would harm the other spouse.

9
Q

Under Injured spouse relief, may an injured spouse entitled to recoup their share of the refund.

A

Answer: Yes

Sometimes a liability belongs only to one spouse. A taxpayer is an “injured spouse” if he files a joint return and all or part of his share of the refund was, or will be, applied against the separate past-due federal tax, state tax, child support, or federal non-tax debt (such as a student loan) of his spouse with whom he filed the joint return. An injured spouse may be entitled to recoup their share of the refund.

10
Q

What Form does the Injured Spouse file?

A

Answer: Form 8379

The taxpayer may file form 8379 with a joint return, with an amended return, or by itself at a later time.

Example: Tom and Lucy expect a refund of $5,000 when they jointly file their tax return. Tom has $60,000 in past-due taxes that he accumulated prior to getting married. To prevent the entire refund from being applied against his past-due obligation, they can file Form 8379, to protect Lucy’s share of the refund

11
Q

Ashleigh and Dino expect a $7,000 refund on their jointly-filed return. However, Dino has $45,000 in past-due taxes that he accrued before he and Ashleigh were married. Which form should they file in order to prevent Ashleigh’s share of the refund from being collected?

  • Form 8888
  • Form 4567
  • Form 8379
  • Form 9762
A

Answer: Form 8379

EXPLANATION

A taxpayer is an “injured spouse” if he filed a joint return and all or part of his share of the refund was, or will be, applied against the separate past-due federal tax, state tax, child support, or federal non-tax debt of his spouse with whom he filed the joint return. An injured spouse may be entitled to recoup their share of the refund. The injured spouse files Form 8379 with a jointly-filed tax return when the joint overpayment was—or is expected to be—applied to past-due obligation of the other spouse. By filing Form 8379, the injured spouse may be able to get back his or her share of the joint refund. The taxpayer may file Form 8379 with a joint return, with an amended return, or by itself at a later time.

12
Q

Danielle expects a large refund this year. She was shocked when her husband informed her that all of her refund will be applied against his delinquent student loans when they file a joint return. Her tax preparer suggested filing an injured spouse claim as a way to prevent this from happening. Which of the following is NOT a proper method for filing an injured spouse claim?

  • Attach Form 8379 with Form 1040 and file jointly
  • Attach Form 8379 with Form 1040 and file as MFS
  • File Form 8379 by itself at a later time
  • File Form 8379 with an amended Form 1040 return
A

Answer: B - Attach Form 8379 with Form 1040 and file as MFS

EXPLANATION

The correct answer is the choice that is not a proper method for filing an injured spouse claim.

The injured spouse files Form 8379 with a jointly filed tax return (cannot file MFS) when the joint overpayment was—or is expected to be—applied to a past-due obligation of the other spouse. By filing Form 8379, the injured spouse may be able to get back his or her share of the joint refund. The taxpayer may file Form 8379 with a joint return, with an amended return, or by itself at a later time.

A taxpayer may file Form 8379, Injured Spouse Allocation, separately after the taxpayer files a joint return with his (or her) spouse. If the taxpayer files Form 8379 separately, the taxpayer should attach a copy of all Forms W-2 and W-2G for both spouses, and any Forms 1099 showing federal income tax withholding, to Form 8379.

13
Q

Jim and Tammy, husband and wife, were both employed and filed a joint return which showed they were entitled to a refund of $1,000. Rather than receiving the refund of $1,000, they received a notice advising them that the entire refund was applied to an amount due that Jim owed from a prior year, which was before they were married. Can Tammy do anything to collect her portion of the refund?

  • No, it’s too late because the IRS took the entire refund.
  • No, because she should have filed MFS and taxpayers cannot amend their return to change their filing status from MFJ to MFS.
  • Yes, she could be considered an innocent spouse and should file Form 8857.
  • Yes, she could be considered an injured spouse and should file Form 8379.
A

Answer: D - Yes, she could be considered an injured spouse and should file Form 8379.

EXPLANATION

A person is an injured spouse if his share of the overpayment shown on his joint return was, or is expected to be, applied (offset) against his spouse’s legally enforceable past-due federal taxes, state income taxes, child or spousal support payments, or a federal nontax debt, such as a student loan. If a spouse is an injured spouse, he may be entitled to receive a refund of his share of the overpayment by filing Form 8379, Injured Spouse Allocation.

14
Q

In which of the following situations can an injured spouse claim be filed?

  1. Rob and Marie, a married couple timely filed their joint tax return for 20X1. In June of 20X2, they received an IRS notice stating that their entire 20X1 refund was applied to delinquent child support Rob owed to the state.
  2. Stu and Cecilia, a married couple, have prepared their joint tax return for 20X1 but have not filed it because it shows a substantial refund which they fear will be applied to a delinquent student loan that Cecilia owes.
  • Neither 1 or 2
  • 1 only
  • 2 only
  • Both 1 and 2
A

Answer: D - Both 1 and 2

EXPLANATION

A person may be an injured spouse if filing the return could impair their refund. A taxpayer may be an injured spouse if they file a joint tax return and all or part of their portion of an overpayment was, or is expected to be, applied (offset) to their spouse’s past-due obligation. Form 8379, Injured Spouse Allocation can be filed with the joint tax return, amended tax return, or by itself after the tax return has been filed subject to the statute of limitations for claiming a refund.

15
Q

Tom Smith has been doing very well playing cards in a regularly held illegal poker game. He has won nearly $50,000. Because he knows his wife disapproves of gambling, he has not told her about any of this and has kept the money he’s won in a box in their attic. The IRS found out about the card game and sought to recover taxes due from Tom and his wife, who have always filed MFJ. What should his wife do to protect herself from liability?

  • Promptly file an injured spouse form.
  • Promptly file an innocent spouse form.
  • She can’t protect herself from liability because he won the money while they were married.
  • Promptly file for divorce and provide documentation to the IRS.
A

Answer: B - Promptly file an innocent spouse form.

EXPLANATION

A spouse who reasonably did not know about income her spouse did not report should file Form 8857, Request for Innocent Spouse Relief, as soon as she becomes aware of a tax liability for which she believes only her spouse or former spouse should be held responsible. Without filing for relief, if the Smiths divorced, Mrs. Smith would still be liable for the tax on the unreported gambling income because it was income during their marriage. Spouses who file MFJ are jointly and severally liable for tax liability that arises during their marriage.

Decks in Fast Forward Academy Flash Cards Class (113):