Joint and Several Liability or an Innocent Spouse

When two people file a joint tax return, in the case of married persons, the taxing authority may pursue both, jointly, for all liability resulting therefrom. This liability can be for the tax amount due,  or by errors and omissions made on a tax return, whether it be federal, state or municipal taxes.  When collecting the taxes, and the associated interest and penalties, taxing authorities are often faced with one spouse seeking relief, claiming not to have earned any taxable income. 

In the case of federal tax liability, if 2 married persons chose to file jointly, each will remain jointly and severally liable, unless otherwise exempted by the IRS.  If the taxpayers choose to file a joint return, the tax is computed on the aggregate sum and the liability is joint and several.¹  The taxpayers take advantage of the lowest effective tax rate, and the largest standard deduction, but in exchange take on the risk of joint and several liabilities for errors or omissions and the tax liability created.  This issue is raised in many divorces where one “innocent spouse” did not personally make the error or omission on the tax return, or did not earntaxable  income, but following a divorce, is saddled with the tax burden.  Regardless of how the divorce decree treats the tax liability between the parties thereto, in the eyes of the federal government, both spouses are joint and severally liable under that joint return. 

There are only three ways a spouse can obtain relief from this joint and several liability for federal taxes, provided the “innocent” spouse had no knowledge of or reason to know of the error at the time the return was signed²:

1. Innocent Spouse Relief provides relief from additional tax owed if your spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.  You must show that you filed an erroneous tax return on which your spouse claimed erroneous deductions or credits, that you did not know, and had no reason to know, of the error at the time you signed the return, and that taking into account the facts and circumstances, it would be unfair to hold you liable for the understatement of tax.³  
2. Separation of Liability Relief provides for the allocation of additional tax owed between you and your spouse or former spouse because an item was not reported properly on a joint return. The tax allocated to you is the amount for which you are responsible. This section is used when you have since divorced or become legally separated, you are widowed, or you have not been a member of the same household as your spouse for the prior 12 months.⁴
3. Equitable Relief may apply when you do not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return and generally attributable to your spouse. You may also qualify for equitable relief if the correct amount of tax was reported on your joint return but the tax remains unpaid, where you can make a showing that under all the facts and circumstances that it would be unfair to hold you liable for the understatement or underpayment of taxes.⁵ 

To obtain relief under one of the above three options, the relief requested must be sought no later than two years after the date the taxing authority first attempted to collect the tax, regardless of the type of relief sought.  While the Tax Court had initially found this regulation invalidly imposed a time limit, the Court of Appeals for the Third, Fourth and Seventh Circuits,  have each reversed the Tax Court and upheld the regulation.⁶

Ohio follows much the same structure.  Pursuant to O.R.C.5747.08(E) joint and several liability is imposed on married taxpayers filing a joint return, including the tax due as well as all interest and penalties association with underpayment or errors and omissions. Taxpayers who file joint returns federally, are required to do the same for their Ohio state tax.   O.R.C. 5703.06 provides that a spouse granted relief under 6015 of the Internal Revenue Code, will have a rebuttable presumption that the spouse is an innocent spouse as to the state tax liability as well. 

However, Ohio Revised Code Chapter 718, which authorizes municipal income tax, is silent as to this issue.  One must look to the definition of a taxpayer under the municipality’s code to determine if a provision for joint and several liability has been made, or if the argument can be made that each taxpayer who signs a return is liable for the tax due under that return, therefore imparting liability upon a spouse under a joint return.  If the municipality’s code is silent on the issue, the argument can at least be made that given the presumption of joint and several liability under the federal and state tax codes, such a consideration should be applied to the municipal tax code as well.  Courts rely heavily on the federal and state tax code when interpreting municipal codes, specifically on the issue of domicile and residency, and should do the same when interpreting the issue of joint and several tax liability for spouses who file jointly.⁷

1  Section 6013(d)(3)- Special Rules Internal Revenue Code. 
2  Section 6015(c) (3)(C)- Special Rules Internal Revenue Code
3  Section 6015(b)- Special Rules Internal Revenue Code
4  Section 6015(c)- Special Rules Internal Revenue Code
5  Section 6015(f)- Special Rules Internal Revenue Code; See Also, Publication 971, Innocent Spouse Relief, Form 8857 Request for Innocent Spouse Relief; www.irs.gov/individuals at Tax Information for Innocent Spouses.
6  See Octavia C. Jones v. Commissioner of Internal Revenue, Fourth Circuit CA No. 10-1985, June 13, 2011 ; Lantz v. Commissioner, 607 F.3d 479 (7th Cir 2010); Manella v. Commissioner, 631 f.3d 115 (3d Cir. 2011). 
7  See Cleveland v. Surella (1989), 61 Ohio App.3d 302