It is tax time again and most married couples will file jointly without considering the consequences or considering only the dollar tax-savings (marriage bonus) from rate splitting for single-earner couples. Couples with two wage earners more likely face a marriage penalty not bonus compared to two single filers. Sometimes a spouse will ask, “Should I elect to file separately?” The question is posed especially when divorce proceedings are ongoing or concluded after December 31 of a tax-year. The question shows a lack of understanding about tax filing-status. Married couples must affirmatively elect to file a joint return. Absent the election by filing jointly, each spouse’s tax liability is determined separately and each spouse’s liability for the tax owed is individual, not “joint and several” as is the case when a joint return is filed (unless one spouse qualifies for relief under the so-called “innocent spouse” rules of Section 6015). Even tax scholars sometimes have misstated the rule. For example Professor Michelle Lyon Drumbl’s exceptional paper, “Decoupling Taxes and Marriage: Beyond Innocence and Income Splitting (Washing & Lee Legal Studies Research Paper Series, No. 2012-37, 11/27/12), states on page 2, couples may choose to “file separate returns by electing the “married filing separately status.” The difference is not mere semantics. For example if no joint return is filed at all, IRS cannot prepare a substitute joint-return under Sec. 6020 but must prepare two separate returns for each spouse, assuming both would be required to file a return. Separate-return status means that each spouse is liable only for the tax determined on his or her separate income and allocated joint items of income and expense. Only separate assets or separate interests (also tenants by entireties interests) in joint assets may be levied upon, seized or foreclosed upon to pay the individual tax debt.
A spouse may rightly not wish to file jointly for many reasons. Some reasons stated in my article (co-authored with Melvyn B. Frumkes, Esquire, “Can and Should a State Court Order an Unwilling Spouse to File a Joint Federal Income Tax Return?”, Journal of the American Academy of Matrimonial Lawyers, Vol. 25, November 2012):
A joint return carries with it joint and several liability for the tax shown to be due on the return or later assessed with regard to the return year.
While Section 6015 offers limited relief to a so-called “innocent spouse,” the facts justifying relief from joint and several liability can be difficult to establish.
The right of indemnification from the other spouse, almost always included in marital settlement agreements, is an imperfect protection because IRS is not bound to first pursue the indemnifying spouse and collection efforts against the indemnified spouse may cause hardship to the spouse who files jointly with little income to report.
A joint return is signed under express penalties of perjury carrying felony consequences for falsity, although criminal liability is individually determined.
In a divorce the lesser earning spouse often has already been deceived in the relationship and does not believe in the honesty of the other spouse.
Preparing the joint return will involve communicating information to the tax preparer, often retained by the other spouse. The preparer’s loyalty is to the other spouse and positions taken in the return may not be in the best interest of the lesser earning spouse.
Return preparers should discuss with married clients the risks and rewards of filing a joint return, beyond mere dollar tax savings, that each spouse can make an informed decision to file or not file jointly with his or her spouse.
Professor Lyon Drumbl and other tax scholars propose eliminating the joint filing status completely. Each spouse would file a separate return. The added cost and complexity of universal separate returns she feels is outweighed by the greater fairness such a system would bring. She points out that low-income taxpayers, who must file jointly, to obtain the earned-income credit, and two-earner couples are especially prejudiced under the current filing-status regime. For my part, there is even greater prejudice against “married filing separately” (MFS) couples. I would retain three filing statuses: Married filing jointly, individual and Head of Household. Keep the rate-splitting for those opting for the simplicity and convenience of joint filing. Eliminate the MFS filing status and single filing-status and replace them with “filing as an individual.” Keep the Head of Household rate for single parents. Why not continue to allow spouses to choose whether to elect rate-splitting, convenience and relative simplicity of filing a single joint return with absolute joint and several liability (I’d do away with the much litigated and little understood innocent-spouse exceptions),or, elect to file and be liable as an individual taxpayer with rates closely following the present single-filer rates? Where limitations for certain family benefits require family income to be considered, each spouse could supply the necessary information. Regulations like those for present MFS returns could provide how benefits are to be allocated, such as to the spouse with the greater income.
Professor Lyon Druml’s paper delves much more deeply and thoughtfully into reasons for eliminating joint filing or at least joint and several liability. I do not here seriously take up the argument but merely offer some casual passing thoughts. Like most cursory, unstudied comments, however, further consideration will probably find reason to reflect further on the idea. In any event, the discussion is meritorious and should be pursued.
In the meanwhile, preparers and couples are forewarned not to take casually the filing of a joint return. Preparers need remember they represent both spouses; and, spouses should focus on all of the benefits and burdens a joint return election holds.
© 2013 by Robert S. Steinberg, Esquire
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