Married and Unfiled: Filing Status After an SFR

When a married couple stops filing, the IRS does not see a couple. It sees two taxpayers, two sets of W-2s and 1099s, and two possible substitute returns. That surprises people, and it usually costs them money.

Here is how filing status works for married non-filers, and what you have to do to get the status you want.

The IRS cannot elect joint status for you

Joint filing is an election. IRC 6013(a) says a husband and wife "may make a single return jointly." The key word is "may." It is a choice the spouses make together.

The examination manual applies that directly to substitutes for return. IRM 4.12.1.24 says joint filing status "is predicated on the husband and wife making an election and intending to file a joint return. Accordingly, the IRS may not elect joint filing status on behalf of taxpayers in a return it prepares and signs under the authority of IRC 6020(b)."

The manual then tells examiners what happens instead: "If married taxpayers fail to execute a joint return, the examiner will have to close the case using a filing status other than married filing joint. Generally, these taxpayers' filing status will be married filing separate."

Why separate status usually costs more

IRS Publication 501 says it directly: you "will generally pay more combined tax on separate returns than you would on a joint return." The publication also recommends figuring the tax both ways. On top of that, an SFR already strips out itemized deductions and credits, as IRM 4.12.1.25.3 and 4.12.1.25.4 describe. Put separate status and a bare-bones SFR together, and the result can be far higher than what the couple would actually owe on a correctly prepared joint return.

There is also a practical problem. If one spouse earned most of the income, the SFR for that spouse carries most of the tax, computed on separate rates, while the other spouse's SFR may show little or nothing. The couple's real economic picture never shows up anywhere.

Signing an exam report is not a joint election

People sometimes think they can fix this by agreeing to the examiner's numbers as a couple. They cannot.

IRM 4.12.1.24 explains that waivers of restriction on assessment, Form 4549 and Form 870, "do not constitute returns for purposes of the election to file a joint return under IRC 6013 because these documents do not purport to be returns and do not contain a jurat with a penalties of perjury clause." The manual cites Rev. Rul. 2005-59 for that point. It adds that IRC 6065 requires a return to be verified by a written declaration under penalties of perjury.

So the only way to make a joint election for an unfiled year is a real joint return, signed by both spouses under penalties of perjury.

How a joint return gets processed after an SFR

The examination manual lays out the process when delinquent married taxpayers cooperate. The examiner should ask the taxpayers to provide returns signed by both spouses if they want the joint election. If they cannot complete one, the examiner may prepare a return for their signatures (IRM 4.12.1.24).

When a signed joint return comes in for a year with an SFR, the examiner prepares a report to post the tax and close the case, and the manual says that any previously filed return for either spouse should be reversed if there are no statute problems, consistent with IRC 6013(b).

On the automated side, the ASFR manual addresses couples who say they filed jointly. If a joint return was filed, the case is closed under specific procedures. If not, the IRS requests a signed copy. When a joint return is filed, the IRS checks that all of the spouse's income was reported (IRM 5.18.1).

The trade-off: joint and several liability

Before you sign a joint return, understand what you are signing. IRC 6013(d)(3) says that if a joint return is made, "the tax shall be computed on the aggregate income and the liability with respect to the tax shall be joint and several."

Joint and several means the IRS can collect the entire joint balance from either spouse. If you are separated, divorcing, or worried about your spouse's income or honesty, that matters a great deal. A lower joint tax is not a good deal if you end up responsible for all of it and your spouse's share was never yours to carry.

This site does not cover innocent spouse relief in depth, but you should know that joint liability can have consequences long after the return is filed. Make the decision deliberately.

When separate may be the right answer

Separate status is not automatically wrong. It can make sense when:

• The spouses are separated or the marriage is ending, and neither wants exposure for the other's tax
• One spouse has significant unpaid tax from other years and the other wants to protect future refunds
• One spouse has income or activities the other spouse does not know enough about to sign for under penalties of perjury
• The difference in tax between joint and separate is small for that year

The point is that separate status should be a choice you make, not a default the IRS assigns.

The deadline issue with joint returns after separate returns

IRC 6013(b) allows spouses who filed separate returns to switch to a joint return after the due date, but with limits. Under IRC 6013(b)(2), the election cannot be made more than three years after the original due date of the return, without regard to extensions. It also cannot be made after a notice of deficiency was mailed to either spouse if that spouse filed a timely Tax Court petition, after either spouse sued for a refund, or after either spouse entered into a closing agreement or a compromise for that year.

Those limits apply when a spouse has filed a separate return. Whether and how they affect your situation depends on what has actually been filed for each spouse. That is exactly the kind of question to resolve before a deadline passes, not after.

Head of household and other statuses

Married filing jointly and married filing separately are not the only options for every taxpayer. IRS Publication 501 notes that a married person who qualifies to file as head of household instead of married filing separately may have a lower tax, may be able to claim certain tax benefits, and will have a higher standard deduction. The qualification rules are specific, so they need to be checked year by year with your preparer. The point is the same as before: an SFR will not explore any of these options for you.

A checklist for married non-filers

• Pull account and wage and income transcripts for both spouses, for every unfiled year.
• Note any SFR, notice, or assessment under either spouse's number.
• Have your preparer compute tax both ways, joint and separate, for each year.
• Discuss joint and several liability honestly, especially if the marriage is under strain.
• Decide filing status year by year. It does not have to be the same every year.
• If filing jointly, make sure both spouses review and sign every return.
• If an SFR exists for either spouse, include a cover note asking that the joint return be processed against the SFR year.
• Watch for 90-day letters addressed to either spouse. Each spouse's deadline is separate.

Bottom line

The IRS will not do you the favor of treating you as a couple. If joint status is better for you, you have to claim it with a real return that both of you sign. If separate status is safer, choose it on purpose. Either way, an accurate return you file beats the separate-status SFR the IRS will prepare without you.