Dealing with Tax Debt After Divorce
A person can take several steps if he or she is divorced and the IRS is making him or her responsible for a spouse’s taxes. Nevada is a community property state, so debts incurred and property acquired during a marriage are treated as community property equally owned by both spouses. In divorce, community property is usually divided between both spouses. Each spouse is required to pay the debt he or she brought into the marriage individually.
Divorced parties share joint tax debt, and each spouse must pay his or her share.
What Can a Person Do About Joint Tax Debt?
The IRS is not bound by a divorce decree. If ex-spouses filed joint tax returns while they were married, both would be liable for tax debt. The IRS can collect the debt from either of them. Both are jointly and severally liable to tax and any other additions to it.
There are remedies when a spouse does not live up to his or her obligations as stated in the divorce decree. The family court can make the spouse responsible. It can hold him or her in contempt of court if he or she fails to make the payments ordered in the divorce decree.
Nevertheless, the IRS can still come after the non-responsible spouse. Besides enforcing the obligations established in the divorce decree through the court, that spouse can apply for relief from joint and several liability with the IRS. The three types of relief available are:
Innocent Spouse Relief: A person can receive this relief if a joint return had an understatement of tax attributable to his or her spouse.
Separation of Liability Relief: A person qualifies for this relief if he or she and the spouse were legally separated or not living together when an item was not reported correctly on a joint return.
Equitable Relief: A person can apply for this relief for something that was not properly reported on a joint return and is attributable to his or her spouse. One can also qualify for the relief if the tax was not paid with the return despite the correct amount of tax being reported on the joint return.
A person who cannot get relief from the IRS can use several other options to settle the tax debt. These include:
- Obtaining Currently Not Collectible (CNC) status
- Installment agreements
- Penalty abatement
Dealing with IRS debts can be challenging and confusing for divorced couples. Individuals can consult with tax attorneys to get tax debt help.