Understanding Tax Liability in Divorce Cases: Lydia and John Wickham

Lydia and John Wickham filed jointly in Year 1. They divorced in Year 2. Late in Year 2, the IRS discovered that the Wickhams underpaid their Year 1 taxes by $2,000. Both Lydia and John worked in Year 1 and received equal income but John had $2,000 less tax withheld than Lydia did. Who is legally liable for the tax underpayment?

Options:

A) Lydia.
B) John.
C) Both Lydia and John.
D) Neither Lydia nor John.

Final answer:

Both Lydia and John are legally liable for the underpayment of taxes because they filed jointly, making them both responsible for the debt, regardless of individual income contributions or tax withholdings.

Explanation:

The direct answer is C:

When married couples file their taxes jointly, they both become jointly and severally liable for the tax and any additional tax, penalty, or interest that may become due on that joint return. This is the case even if they later get divorced. It does not matter who earned the income or whether one spouse had less tax withheld than the other - both spouses are fully responsible for the accuracy and completeness of the joint return. It's important to note that 'innocent spouse relief' is a possible option, but this must be applied for and is not automatically granted; without such relief being approved, both spouses remain liable.

In the case presented, it doesn't matter that John had less tax withheld than Lydia did. The fact that they filed jointly means they are both responsible for making up the underpayment, regardless of their subsequent divorce. In legal terms, the responsibility for a joint return persists beyond the personal relationship of the filers. This scenario often leads to complications during divorce proceedings, and it implies that both Lydia and John have an obligation to settle the tax underpayment with the Internal Revenue Service (IRS).