The solution to any lost refund issue:  Review your withholding to eliminate the IRS refund and put the cash in pocket for necessary expenses.

If you are losing your refunds to the IRS, change your withholding.   Take your refund, divide it by the number of your paychecks, and tell your employer to lower your withholding by that amount each pay period.  You can also change the number of exemptions you are claiming, although I prefer making a specific dollar change.  You will probably need to complete a new W-4 for the change.

If you are married, file jointly and only your spouse owes the IRS, it is important to attach an Injured Spouse Allocation (Form 8379) to your return.

You are being injured by the IRS taking your refund and applying it to your spouse’s tax liability. You can still file jointly – there are benefits to you over filing separately –  but use the injured spouse allocation – it permits the IRS to calculate how much of the refund was generated by you, and pay it to you, rather than apply it to a debt that is not yours.

Most tax refunds are generated from too much withholding.  In essence, this means you are making a loan to the IRS of your money by overpaying the current year’s taxes.  While for some this is a good way to accelerate paying the IRS back, if it is more than your budget can take, change your withholding or file a injured spouse claim.

My ex was self-employed when we were married, and he never paid his taxes. I made the mistake of signing joint returns. When we got divorced, we signed papers stating he would pay our back taxes, but the IRS coming after me.  Will my divorce decree help?

The decree may have value to you if you believe you are an innocent spouse. The IRS does consider the decree as one of several factors in reviewing your claim.  Those factors include abuse, what you knew about the unpaid taxes, involvement in family finances, and whether you benefited from the unpaid taxes.

Bear in mind that your divorce decree does not, standing alone, bind the IRS. When you signed the return, the liability became “joint and several.”  You became responsible for the accuracy of the return and for the payment of the liability on it, even if it was not yours.  The decree will not automatically make it go away or cause the IRS to shift their attention to your ex.  

If you can prove to the IRS your signature on the joint return was forged or you signed the return under fraud or duress, the IRS will convert your joint liability to a separate one.  This relieves you of paying your ex’s taxes.

You may also have solutions to the collection of the liability against you: Bankruptcy, offer in compromise, uncollectible, or the statute of limitations on collection.

If separate tax returns are filed, only the person who signed and filed the return is legally obligated to pay the taxes.  If your spouse did not sign or file a joint return with you, then the IRS cannot collect from him or her.

If joint returns were filed during a prior marriage, the IRS cannot collect your old liability from your new spouse.

Even if a joint return was filed, the IRS has innocent spouse rules to protect a spouse who claims “innocence” as to the liability.  Innocence generally means the spouse did not know or had no reason to know of the liability and received no benefit from the unpaid taxes.  If the IRS grants relief, it will not collect from the innocent spouse even if a joint return was filed.

The IRS also cannot take any separate assets of your spouse, like cars and real estate.  However, if the asset is yours and you place it in your spouse’s name, the IRS can pursue your spouse for recovery.