If you are one of the millions of American that are experiencing a divorce and have tax debt, here’s what you need to know.
Filed a joint federal income tax return?
If you have filed joint federal income tax returns and have a balance, you each will be liable for the entire amount of tax liability until the amount of the liability is paid in full. In other words, if the joint liability is $25,000, each spouse is liable for the $25,000, however, the IRS can only collect a maximum of $25,000 total. If the IRS happens to levy a bank account from one spouse that contains $25,000, the liability is satisfied as to both spouses. If you are the non-working or income producing spouse, the IRS will seek to collect from the working or income producing spouse.
What about a divorce settlement?
The IRS is not a party to your divorce settlement agreement. In other words, just because your divorce agreement says that one spouse is responsible to pay the outstanding income tax liability, does not mean that the IRS will seek to collect only from that spouse.
Setting the debt with the IRS
Either spouse may still seek to file an >Offer in Compromise (OIC), Installment Agreement or Hardship Status and the IRS will only rely on that spouse’s information.
If the IRS accepts an OIC from the one spouse, the other spouse is still liable for the outstanding tax due.
If you submitted a request for an Offer in Compromise during your marriage and then filed for divorce or separation during the Offer in Compromise process and currently live in separate households, you will need to resubmit the financials using only *your* income and expenses.
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