Who is Responsible for IRS Debt When a Married Couple Divorces?

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You negotiated a fair divorce settlement and the court assigned responsibility to your spouse for most of the joint IRS debt. You want to get on with your life but today you received a notice from the IRS demanding payment for taxes that your spouse is responsible for. Your questions are: Who is responsible for IRS debt when a married couple divorces? Does it matter what the divorce decree states regarding who is responsible? Here is what you should know.

Creditors are not bound by your divorce decree. The divorce decree assigns responsibility for debts that is binding between the divorced parties. If your spouse doesn’t live up to his obligations as per the divorce decree you should have remedies detailed in the divorce decree. However, as a general rule creditors are not bound by the divorce decree and this includes the IRS.

Generally, if you were liable to the IRS for tax debt before divorce, you will still remain liable after divorce. What changes is that your ex-spouse can be made responsible by the court and you can enforce this obligation through the courts. The IRS can still come after you.

What Can You Do About Tax Debt After Divorce?

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Joint and several liability. To begin with, if you file tax returns jointly when married then both spouses are liable to the IRS and the IRS can collect 100% of the debt (tax, penalties, and interest) from either spouse. This is true after divorce even if the spouse that has been obligated to pay the tax debt (as per the divorce decree) fails to pay the debt.

When you file joint tax returns when married, both taxpayers are jointly and severally liable for the tax, penalties and interest. Divorce does not eliminate each party’s responsibility to the IRS. There are some types of relief available from this joint and several liability. Besides enforcing obligations stated in the divorce decree through your family court, you can also apply with the IRS for relief.

Here are three possible actions to limit tax debt for the non-responsible spouse:

(see at IRS website www.irs.gov/taxtopics/tc200/tc205)

Apply to the IRS for Innocent Spouse Relief. To qualify for Innocent Spouse Relief you must meet all of the following conditions:

  • Your joint return has an understatement of tax that’s solely attributable to your spouse’s erroneous item, such as income received by your spouse but omitted from the joint return. Also included as erroneous items are deductions, credits, and property basis if incorrectly reported on the joint return.
  • When you signed the joint return you didn’t know, and had no reason to know, that there was an understatement of tax.
  • Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax.

Even though the IRS is not bound by assignment of tax responsibility as set out in your divorce decree, the decree could help you to demonstrate to the IRS regarding factors the IRS considers. These factors include abuse, your knowledge of whether taxes were properly reported or your knowledge as to whether or not they were paid, and to what extent you did or did not benefit from the unpaid taxes. You might want to have your divorce attorney consult with a knowledgeable tax relief attorney when negotiating your divorce settlement.

You must apply for Innocent Spouse Relief within two years after the date that the IRS first attempted to collect tax from you.

Apply to the IRS for Separation of Liability Relief. You can possibly get a different allocation of tax debt for an item that was not properly reported on a joint return. To qualify for this relief you must meet one of the following requirements:

  • You are divorced or legally separated from the spouse with whom you filed the joint return
  • You are widowed, or
  • You haven’t been a member of 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 relief

If you had actual knowledge of the item that gave rise to the understatement of tax at the time you signed the joint return, you don’t qualify for separation of liability relief.

You must apply for Separation of Liability Relief within two years after the date that the IRS first attempted to collect tax from you.

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Apply to the IRS for Equitable Relief. When you don’t qualify for either Innocent Spouse Relief or Separation of Liability Relief, you can apply for Equitable Relief for something that was not properly reported on a joint return and generally attributable to your spouse. You can also qualify for this relief if the amount of tax reported was correct but the tax wasn’t paid with the return.

The following factors may be considered by the IRS in determining whether or not to grant equitable relief, but the list is not all-inclusive:

  • Current marital status
  • Reasonable belief of the requesting spouse, at the time he or she signed the return, that the tax was going to be paid; or in the case of an understatement, whether the requesting spouse had knowledge or reason to know of the understatement
  • Current financial hardship/inability to pay basic living expenses
  • Spouses’ legal obligation to pay the tax liability pursuant to a divorce decree or agreement to pay the liability
  • To whom the liability is attributable
  • Significant benefit received by the requesting spouse
  • Mental or physical health of the requesting spouse on the date the requesting spouse signed the return or at the time the requesting spouse requested the relief
  • Compliance with income tax laws following the taxable year or years to which the request for relief relates
  • Abuse experienced during the marriage.

For equitable relief, you must request relief during the period of time the IRS can collect the tax from you. If you’re looking for a refund of tax you paid, then you must request it within the statute period for seeking a refund, which is generally three years after the date the return is filed or two years following the payment of the tax, whichever is later.

Community Property States – if you lived in a community property state and did not file as married filing jointly, you might qualify for relief from the operation of state community property law.

What if I can’t get relief from the IRS?

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If you are still liable for taxes and cannot get your ex-spouse to pay the tax debt, then you have all of the options that other taxpayer have to settle your IRS debt. Some of your options include:

  • Installment Agreements
  • Currently Not Collectible Status
  • Offer-in-Compromise
  • Abatement of Penalties
  • Bankruptcy

Consult with an experienced tax debt relief attorney for the possible alternatives you have to settle your tax debt during marriage or after a divorce

If you are separated or divorced, don’t think it is fair for the IRS to make you responsible for your spouse’s taxes, and want to know what you can do about this, schedule your Free IRS Innocent Spouse Relief Consultation now

About the Author Tony Ramos

Marco Antonio “Tony” Ramos, founding partner of The Law Office of Tony Ramos, P.C., is licensed by the Texas Supreme Court to practice law. He is a native Texan, born in Laredo, Texas, and has been practicing law since 1976. Attorney Ramos is a man who highly values virtue, integrity, and justice and strives to provide a higher standard of legal care to all of our clients.

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