In marriage, we share and trust our spouses with our many financial assets and responsibilities: bank accounts, credit accounts, and mortgages, just to name a few. A joint tax return, though, can cause more headaches and heartaches than any other shared financial responsibility. This is because the IRS can hold you liable for costly mistakes made by your spouse on a joint return.
So what happens when you discover you owe taxes even though it wasn’t you who made the mistake in the first place? If your ex-spouse under-reported income or over-reported exemptions, should you have to pay the price? Does the IRS offer a way out for taxpayers in this situation?
If you find yourself in this unfair and unfortunate situation, you have the following choices: 1) pay; 2) wait; or 3) seek relief from the IRS.
Maybe I’ll pay for my ex’s mistake?
If your ex-spouse is unable or unwilling to help and you can easily afford to pay the past-due amount, this is probably the best way to get out of the situation. It is the quickest and easiest way to stop having to deal with the IRS. Another benefit is that your compliance will be put down on record, which can be helpful if you ever run into federal tax troubles in the future. However, you will be paying money that you may not actually owe, so you will need to use your own judgment, consider the amount of the debt, and weigh other factors (such as your relationship with your ex-spouse) before making your decision.
What happens if I don’t pay?
Unfortunately, your ex-spouse may not be available or held accountable for the past joint return, so you must take action before the IRS does. If a tax account is delinquent, the IRS is authorized to take severe measures to collect the debt. It can order a federal levy of your bank accounts, wages, or other valuable assets to satisfy the tax debt.
The IRS can also place a lien on your home. This means the IRS will be the first to receive payment if you sell your house. Liens are typically reported to the credit reporting agencies and can be damaging to a person’s credit rating.
Wage garnishment is another possible consequence of tax delinquency. The IRS may contact your employer and a portion of your earnings could be collected by the IRS until your tax debt is fully paid. In addition to these actions, the IRS may add to your tax debt by charging penalty fees and interest, which can add up quickly and will only make it more difficult to satisfy your tax debt.
Could I seek alternative solutions?
In some cases, you may feel that you should not be held accountable for the back taxes at all and that the responsibility falls entirely on your ex-spouse. You may be able to file for Injured Spouse Relief or Innocent Spouse Relief, depending on your circumstances. These tax relief options are offered by the IRS for people who find themselves in this and similar situations.
If your ex made false reports or mistakes on your joint return, and if you can prove you had no knowledge of the error, you may qualify for Innocent Spouse Relief. In this case, you may obtain Form 8857 from the IRS website, complete the form, and send it to the IRS. You are typically required to prove that you filed a joint return with your spouse and that you were not aware at the time of signing the return that your spouse was misreporting income or deduction items.
You may be eligible for Injured Spouse Relief if you are denied a refund because your joint return’s refund was held back to pay your ex’s back taxes or other federal or state debt, such as child support, spousal support, or student loans. In this case, acquire Form 8379, also found on the IRS website, and allocate income, adjustments, deductions, and credits between yourself and your spouse in Part 2. Send the IRS an individual tax return with the form to receive credit.
These relief procedures are provided by the IRS to recognize that, in some cases, you may not be held accountable for a spouse’s mistakes or personal obligations. You can fill out the paperwork and file for these measures yourself, or you can get help from CPA’s and other authorized tax professionals. If you are seeking help to remedy a situation after divorce, however, you may want to contact a tax resolution company. These agencies aim to assist clients in mitigating or absolving tax liabilities and typically have much more experience in settling these types of problems (as opposed to a tax preparation company, which mainly helps taxpayers file returns).
Taxes are often complicated, and running into difficult situations just adds to the problem. But one thing is certain: if you wait too long, the IRS can enforce collections with levies, wage garnishment, and other methods. You can stop these actions by working with the IRS to resolve the problem – and the sooner, the better.