This is the third post in the Frequently Asked Tax Questions in Family Law Cases series. This series is intended to answer questions family attorneys frequently ask us regarding tax issues.
Question: Husband and Wife have an unpaid tax obligation from a prior year tax return in which they filed “Married filing jointly” status. The Divorce Decree states that Husband is solely responsible for paying the joint tax obligation. The Divorce Decree also states that Husband must indemnify Wife if Wife pays any funds to the IRS for the joint tax obligation. Can the IRS still pursue Wife for the unpaid joint tax obligation even though the Divorce Decree states Husband is solely responsible for paying the joint tax obligation?
Answer : Yes, the IRS can pursue Wife even though the Divorce Decree states Husband is solely responsible for paying the joint tax obligation. The IRS is not a party to the divorce proceeding and the Family Court’s determination is not binding on the IRS. Both Husband and Wife remain jointly and severally liable for the joint tax obligation. Wife can sue Husband for indemnification if the IRS collects any funds from her.
There are generally two ways a taxpayer can get relief from joint and several liability on a joint tax return.
1. “Purge” the tax return. This remedy is available in extremely limited circumstances such as forgery or duress, and not always available in all forgery and duress situations. For the IRS to purge the tax return, the taxpayer must prove he or she did not actually or tacitly consent to the filing of a joint return or signed the joint return under duress. If the IRS agrees to purge the joint return, the result is as if both taxpayers never filed a tax return. The IRS will require each taxpayer spouse or ex-spouse to file a tax return.
2. “Innocent Spouse Relief” pursuant to Internal Revenue Code Section 6015. This remedy is much more common. Please review our Innocent Spouse Relief blog section for more information about Innocent Spouse Relief. Depending on the circumstances, the IRS can grant full or partial relief from a joint tax obligation.
Even though language in a Divorce Decree cannot stop the IRS from collecting from either or both ex-spouses, the language in the Divorce Decree matters. How the Divorce Decree allocates the joint tax obligation is one of the factors the IRS considers when determining whether to grant a taxpayer Innocent Spouse Relief. This language can often be the difference in whether a taxpayer is granted Innocent Spouse status. We advise family law attorneys to seek help from an experienced tax professional before entering the Divorce Decree when their client owes joint tax obligations for one or more years.