If you just received a notice from the IRS requesting payment for taxes that your spouse is primarily responsible for, at a point where you’re only concerned with getting on with your life, you may be asking: Whose responsibility is the IRS debt when a married couple divorces? Does the divorce decree that states the responsible party matter to the IRS? You’re asking the right questions.
Here Is What You Need To Know.
Creditors are not compelled by divorce decrees. While the divorce decree probably assigns responsibility for debts owed by the divorced party, it is not up to the creditor to enforce the decree. As such, if your ex-spouse doesn’t fulfil their obligations as per the divorce decree, it is up to you to provide remedies as detailed in the divorce decree. But you need to get it done fast, as creditors, including the IRS, do not rely on divorce decree to demand payment from you.
As a rule of thumb, if you were liable for tax debt to the IRS before divorce, you remain liable after divorce. The only thing that changes is that your ex-spouse can also be made responsible by the court. However, you can only enforce this obligation through the courts, not through the creditors. The IRS can, and will still come after you, if your ex-spouse doesn’t pay up.
Joint and Several Liability.
If you and your spouse jointly filed your tax returns when married, then both of you will be liable to the IRS. It means that they can collect 100% of the debt (tax, interest and penalties) from either spouse. This remains true after divorce, even if the party under obligation to pay the tax debt (based on the divorce decree) fails to pay.
When you file joint tax returns as a married couple, both of you are jointly and severally liable for the tax, interest, and penalties. Divorce does not transfer or eliminate any party’s responsibility, according to the IRS. This joint and several liability offers some types of relief to married couples. Apart from the opportunity to enforce obligations as stipulated in the divorce decree through your family court, it’s also possible for you to apply with the IRS for tax relief.
Steps to limit tax debt for the non-responsible spouse:
Apply to the IRS for Innocent Spouse Relief.
You can apply for innocent spouse relief. Here are conditions for qualifications:
There’s an understatement of tax in your joint return that’s singly attributable to your spouse’s erroneous item, like income received by your spouse but absent from the joint return. Further erroneous items include; credits, deductions, and property basis if they are reported incorrectly on the joint return.
You didn’t know, or have any reason to know that tax understatement was included in the joint return when you signed.
Carefully considering all available evidence, holding you responsible for the understatement of tax would be an unfair thing to do.
Your divorce decree can help you to persuade the IRS to consider some factors that absorb you of liability, even though the IRS is not compelled to act within the stipulations of your divorce decree. The factors that would be considered include your knowledge of whether taxes were accurately reported or not, your knowledge of whether taxes were paid or not, abuse, and to what extent you did or did not benefit from the unpaid taxes.
When negotiating your divorce settlement, it is advisable to have your divorce attorney consult with a knowledgeable tax relief attorney.
Apply for Innocent Spouse Relief within 2 years after the date the IRS first attempted to collect tax from you.
Apply to the IRS for Separation of Liability Relief.
It is possible to secure a different allocation of tax debt for an item if it was not correctly reported on a joint return.
These are the requirement you need to meet to qualify for this relief:
- You are legally separated or divorced from the spouse with whom you filed the joint return
- You are widowed, or
- You haven’t shared the same household as the spouse with whom you filed the joint return at any time during the 12-month period, ending on the date you request the relief
You don’t qualify for separation of liability relief if you had first-hand knowledge of the item that caused the understatement of tax at the time you signed the joint return.
Apply for Separation of Liability Relief within 2 years after the date that the IRS first attempted to collect tax from you.
Apply to the IRS for Equitable Relief.
You can apply for Equitable Relief if you do not qualify for either Innocent Spouse Relief or Separation of Liability Relief. Equitable Relief applies to an item that was not correctly reported on a joint return and is generally ascribable to your spouse.
If the amount of tax reported was accurate, but the tax wasn’t paid with the return, you can also qualify for this relief.
Factors that determine suitability for Equitable Relief
- Present marital status
- Current financial difficulty/inability to pay basic living expenses
- Spouses’ legal obligation to pay the tax liability in conformity to an agreement to pay the liability or a divorce decree
- To whom the liability is imputable
- Significant benefit obtained by the requesting spouse
- Reasonable assumption of the requesting spouse, at the time they signed the return, that the tax would be paid; or in the case of an understatement, whether the requesting spouse knew or had reason to know about the understatement
- Mental or physical health of the requesting spouse when the requesting spouse signed the return or requested the relief
- Adherence to income tax laws after the taxable year or years upon which the request for relief is based
- Experience of abuse during the marriage.
Equitable Relief
You need to request relief within the time the IRS requests the tax from you to receive equitable relief.
Request for tax refund within the statute period for seeking a refund. This period is usually three years after the specific date the return is filed or two years after the payment of the tax – whichever comes later.
Community Property States – You might qualify for relief from the operation of state community property law if you lived in a community property state and did not file as married filing jointly.
What if I can’t get relief from the IRS?
If you are still liable for taxes after exhausting the applicable option(s), and you’re unable to get ex-spouse to pay the tax debt, then you have to consider all of the options available to other taxpayer to settle your IRS debt. Here are a few of such options:
- Installment Agreements
- Offer-in-Compromise
- Abatement of Penalties
- Currently Not Collectible Status
- Bankruptcy
Getting the Help You Deserve With Your Tax Debt
It is never a good idea to approach complex financial decisions without sound advice from people who really understand the choices you’re weighing. That is why we are there, to give you the resources to reach the best possible understanding with the IRS. If you are in process of getting a divorce or have already divorced and in need of tax relief, contact us today by phone (1-888-548-0478) or email.
