Filing Status Issues in Divorce

By Dr. John L. Stancil
Tax Analyst, WebTaxCenter.com

By most accounts, the number of divorces in the United States exceeds one million per year. Obviously, these divorces create a number of changes in the lives of those involved. One change that may not be fully considered is the change in tax status resulting from a divorce. Although there are many issues in divorce that affect your tax liability, this article only deals with issues related to filing status.

In terms of filing status, your marital status on the last day of the year determines what filing status you can use when filing your return. Thus, if you are married for the entire year, but obtain a divorce on December 31, you must file single unless you qualify as head of household.

There are three requirements that must be met in order to file as head of household. First, you must be unmarried or "considered unmarried" on the last day of the year. Considered unmarried is a status set by the IRS. Although there are a number of requirements, the primary criteria is that your spouse did not live in your home at any time during the last six months of the year.

The second criteria states that you must have paid more than half the cost of keeping up a home for the year. Finally, a "qualifying person" must have lived in the home with you for more than half the year. Again, the criteria for a qualifying person are somewhat detailed, but if your child, parent, or certain other relatives live in you home you may have a qualifying person. The qualifying person does not have to be your dependent in all cases.

Filing as head of household usually has some advantages over filing single. Under this status, you will have a higher standard deduction and you may pay a lower rate of tax on some of your income.

When you are divorced, you may still be responsible for any tax, interest, and penalties on a joint return you filed prior to the year of your divorce. This liability is joint and individual, meaning that the IRS can take action against you or your former spouse for the entire amount without regard to who earned the income.

You may be able to protect yourself against this liability, as the IRS provides three types of relief from joint liability. The first of these is innocent spouse relief. In order to be eligible for this type of relief you must meet four conditions:

• The tax sought by the IRS must be based on a joint return for the year in which relief is sought.
• The return must have an understatement of tax due to incorrect reporting by your former spouse.
• You did not know of this understatement of tax.
• It would be unfair to hold you liable for payment of the understated tax.

Innocent spouse relief must be requested within two years after the IRS began attempts to collect the tax.

The second method of relief is separation of liability. This approach attributes the tax to the spouse earning the underreported income. Equitable relief is the third method of relief available. If you do not qualify for one of the first two methods of relief, you may be able to obtain equitable relief.

All three types of relief may be requested from the IRS by filing Form 8857. It should also be noted that these types of relief may apply to individuals in settings other than divorce.

An innocent spouse is not the same as an injured spouse. A person may be an injured spouse if they file a joint return and all or part of their refund is applied against the debts of the other spouse. Debts for this purpose are past due federal tax or state taxes, child or spousal support, and federal non-tax debt such as a student loan.

You must meet three requirements in order to be considered an injured spouse:

• You are not required to pay the past due amount.
• You reported income on the joint return
• You had federal income tax withheld from your salary, made estimated payments of your income tax liability, or claimed the Earned Income Credit.

To obtain injured spouse relief, you should file Form 8379. This may be filed with the return when it is expected that the refund will be diverted. If the return has already been filed, send the form to the IRS center where the tax return was filed.

For more detailed information about your filing status or other tax issues related to divorce, you may go to www.irs.gov, www.webtaxcenter.com, or contact your CPA or other tax planner.

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Dr. John L. Stancil, a tax analyst for WebTaxCenter.com, has been a member of the Florida Southern College faculty since 1998. He received his bachelors degree from Mars Hill College and holds a M.B.A. from the University of Georgia. He later earned his doctorate in accounting from the University of Memphis. He holds four professional certifications, including CPA, CMA, CFM and CIA. Stancil has received the Florida Institute of CPAs 2005 Outstanding CPA in Public Service Award. (This award is given annually to a Florida CPA who has demonstrated significant contributions through community and civic activities.) He has also been recognized as the Expert of the Month on several occasions by allexperts.com.

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