Form 8379 Injured Spouse

[Snaggletooth]

Female client has been married two years and we are aware husband has back tax liabilities going back several years. The couple has a total of 3 children and a combined income of maybe $38K. Clearly candidates for EIC. Filing married and separate denies the taxpayer prodigious tax benefits such as Earned Income Credit.

Instead we are considering filing form 8379, injured spouse allocation. Not sure whether tax benefits are lost by filing an 8379 or not.

The instructions call for the items of income and deductions to be allocated to each spouse, but then says the IRS will be calculating the amount of tax liability/refund attributable to each spouse. I am somewhat leery of filing such a return without knowing the outcome.

Assuming I am reasonably knowledgeable, is there a way for me to estimate how the IRS is going calculate the split before we commit to filing the return?

[Gene V]

See if this IRM web site helps

https://www.irs.gov/irm/part25/irm_25-018-005.html#d0e98

[Snaggletooth]

Thanks Gene

Yes, it does help. One of the things that comes out of your link is the realization that "under no circumstances can the refund to the injured spouse exceed the refund that would occur under a joint return".

That may kill the idea entirely.

I've explored the 8857, the "innocent" spouse election, but since she already knows about his liability, she doesn't qualify. She can't claim she doesn't know because IRS took their refund last year and she filed 8857 last year. Hard to justify claiming 8857 two years in a year.

[David1980]

One of the things that comes out of your link is the realization that "under no circumstances can the refund to the injured spouse exceed the refund that would occur under a joint return".

That may kill the idea entirely.

How are you reading "the refund that would occur under a joint return"?

Let's say the refund is $5,000 and the taxes owed for the prior years are $20,000. If they file a joint return, no injured spouse or anything, the IRS will take the full $5,000 refund.

Not ideal, so instead you file injured spouse. If they calculate the separate tax liabilities such that the injured spouse would receive a refund of $7,000 and the other spouse would owe $2,000 netting $5,000 the refund to the injured spouse would be limited to $5,000 not $7,000.

It's the refund amount prior to the offset. Basically, if the joint return showed $0 due or a balance due the injured spouse wouldn't help. You can't get more back filing the injured spouse than you would were there no offsets.

[Snaggletooth]

Current Year Application

DaveO, I hope you are right. You are assuring me that the limit of the joint return is the refund based on the CURRENT YEAR only, without taking into account his liability for back years.

Thank you for this - extremely helpful if you are correct. I can't read that you are correct in any of the reading material, and remember the IRS will be doing the calculating if Form 8379 is attached.

[David1980]

Well, if the injured spouse allocated amount was limited to the post-offset refund amount on the joint return there'd be no reason to ever file an 8379. As you would never get anything that you couldn't have gotten without the 8379.

The IRM does clarify that sentence.

"Under no circumstances can an injured spouse be refunded more than the joint overpayment. Thus, for example, it is possible under this formula for the liable spouse to not have sufficient credits to cover his or her share of the tax liability, and for the injured spouse's share of the credits (when applied to his or her liability) to exceed the joint refund. In this circumstance, the injured spouse is entitled to a refund only to the extent of the overpayment on the joint return. See Rev. Rul. 85-70, 1985-1 C.B. 361."