“ Would it be better if we filed separate and could she claim our 2 childeren so we can get a better refund?”---->Negative; as you know, married taxpayers can choose between filing a joint tax return or a separate tax return. The Married Filing Separately filing status usually provides fewer tax benefits than filing joint returns, but taxpayers will need to weigh the pros and cons and decide for themselves which is the best filing status. The married filing separately (MFS) filing status is the least beneficial of all the filing statuses. That's because MFS taxpayers are not eligible to claim the following tax benefits: credit for the elderly and disable; child and dependent care credit; earned income credit, or etc. If yourspouse filed a joint return with you, and she is not responsible for the debt, but she is entitled to a portion of the refund she may request her portion of the refund by filing Form 8379, Injured Spouse Allocation. Your spouse needs to attach Form 8379 to herr original Form 1040 or file it by itself after she is notified of an offset. If she files a Form 8379 with her return, write "INJURED SPOUSE" at the top left corner of the Form 1040, 1040A, or 1040EZ. IRS will process her allocation request before an offset occurs. If she files Form 8379 with her original return, it may take 11 weeks for Electronic Filed returns or up to 14 weeks from the date of filing if she files a paper return, to process her return. If your spouse files Form 8379 by itself, it must show both spouses' social security numbers in the same order as they appeared on her income tax return. She, the "injured" spouse, must sign the form.
Please visit the IRS website here; http://www.irs.gov/pub/irs-pdf/f8379.pdf