Who Is Responsible for IRS Debt in a Divorce
By Michael Marz
Married couples aren’t automatically responsible for each other’s back tax debts to the Internal Revenue Service unless they choose to file joint returns. Getting a divorce, however, doesn’t relieve you of liability for paying tax bills incurred during the years you filed jointly. In some circumstances, the IRS has the authority to impose 100 percent of the back-tax liability on one spouse.
Joint Return Liability
Choosing to file a joint income tax return with your former spouse means that you’re both jointly and individually responsible for paying all back taxes, as well as any penalties and interest, still outstanding after your divorce. For example, suppose you filed a joint return with your ex-husband for 2014, and it reports an outstanding balance of $5,000 -- which remains unpaid at the time your divorce is finalized in 2015. Regardless of who earned the income that the $5,000 is owed on, the IRS can collect the full balance from either one of you, meaning you can end up having to pay the entire $5,000 if your ex-husband doesn’t.
Audit Exposure after Divorce
The IRS generally has three years from date you file a joint return to perform an audit and, if necessary, increase the amount of tax you both owe. As a result, getting divorced doesn’t end your potential future liability for the joint returns you’ve filed. Assuming that 2014 return was timely filed by April 15, 2015, the IRS has until April 15, 2018 to perform an audit and potentially increase that $5,000 tax bill if it finds that income was omitted, a deduction or credit you weren’t eligible for was taken, and for any other issue that impacts your tax bill for the year. Moreover, it doesn’t matter who filled out the return or whether you were aware of the mistake or omission -- signing a joint return make you responsible.
Ten Years to Collect Joint Tax Debt
Ignoring IRS requests for payment will not make the joint tax debt go away after your divorce. The IRS is authorized to pursue collection of the tax for up to 10 years from the date the return is filed or the date the agency finalizes an audit – whichever is later. In doing so, the IRS can obtain a lien against your property, garnish your wages or freeze your bank account to collect the back taxes. If your ex-husband doesn’t pay the debt or is able to avoid some of these harsher collection procedures, the agency will collect everything from you. This remains true even if your ex-husband assumes responsibility for the debt in the divorce decree.
Relief from Joint Liability
You can request innocent spouse relief from the IRS to eliminate or reduce your joint liability in a situation where your ex-husband is solely responsible for the mistake or omission that increases the amount of tax your jointly liable for. To qualify, you’ll need to prepare Form 8857 and prove you were not aware, nor had reason to be aware, of any impropriety. Alternatively, you can ask the IRS for separation of liability relief, which can limit your responsibility to one-half of the tax bill. If the IRS doesn’t separate the liability and you’re not eligible to claim innocent spouse relief, your last option is to request equitable relief, which is available for the correct joint tax bill reported on a return but has yet to be paid.
Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.