This is the first article in a series addressing frequently asked questions related to protection from joint and several tax liability in divorce. We are often asked about the language that a taxpayer’s attorney should include in the divorce decree to protect the taxpayer from joint and several tax liabilities resulting from only their spouse’s conduct. This series is intended to provide taxpayers and practitioners with answers to the most commonly asked questions related to drafting a divorce decree to provide protection from joint and several tax liability in divorce.
Drafting a Divorce Decree to Protect Against Joint and Several Tax Liability
Too often in divorce cases there is an outstanding joint and several tax obligation shared by the parties. The remaining tax obligation is frequently the result of only one spouse’s conduct, however, because the divorcing spouses filed joint tax returns throughout the marriage, the “innocent spouse” now shares the liability.
Because the IRS is not a party to the proceedings, a divorce decree cannot broker the settlement of the tax obligation with the IRS. However, the language used in the decree can position an innocent spouse for success in their future request to the IRS for relief from the tax obligation. This series will address several drafting tips to position an innocent spouse to successfully obtain one of the most common sources of relief from joint and several tax liability.
Language in the Divorce Decree Will Not Stop the IRS From Pursuing a Non-Responsible Spouse
A divorce decree may explicitly state that one party is solely responsible for paying the joint tax obligation. This language does nothing to prevent the IRS from pursuing the non-responsible party for payment of the joint tax obligation. To get relief from a federal tax obligation, the non-responsible spouse must be granted that relief from the IRS, not the Family Court. The IRS is not a party to the divorce proceeding and the Family Court’s determination is not binding on the IRS. Therefore, despite the explicit language in the decree, the IRS can take collection action against the non-responsible spouse. IRS collection action can include filing liens against the non-responsible spouse’s property or levies against their wages and retirement accounts.
Language in the Divorce Decree Can Greatly Increase the Non-Responsible Spouse’s Odds of Success in Obtaining Innocent Spouse Relief from the IRS for a Joint and Several Tax Obligation
The Internal Revenue Code provides several forms of relief from joint and several tax liability. The most commonly used provision is IRC § 6015. IRC § 6015 provides for “innocent spouse” relief from the liability. Many family law attorneys are familiar with innocent spouse relief but are unsure how to draft their client’s decree to help ensure their client is successful in obtaining innocent spouse relief from the 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 decree matters. Whether a taxpayer receives innocent spouse relief is a fact intensive determination, and it is important to establish as many facts in the non-responsible spouse’s favor as possible. How the decree allocates the joint tax obligation is one of the factors the IRS considers when determining whether to grant a taxpayer innocent spouse relief. The decree can also preemptively address the elements necessary for the non-responsible spouse to obtain innocent spouse relief and present the facts necessary to support the non-responsible spouse’s request for relief.