In divorces where the couple amassed unpaid tax debt from jointly field returns, it is common for their divorce decree (i.e., marital settlement agreement or order of divorce) to allocate the tax liability to one or both spouses. Once properly entered on the divorce docket, this allocation is legally binding on the former spouses. But is it binding on the IRS?
To quote the IRS itself: “Many taxpayers are apparently surprised to learn that under current law their divorce decree’s allocation of liabilities is not binding on creditors (including the IRS) who do not participate in the divorce proceedings.” Stated differently, for joint tax debt, the IRS is legally permitted to collect the entire tax debt from either (or both) former spouses regardless of what their divorce decree says. If the IRS were to collect the tax debt from the spouse who is not responsible under the divorce decree, that spouse’s only recourse would be against the spouse who is responsible for the tax debt.
So to answer the opening question, when it comes to which spouse the IRS can go after for a joint tax debt, the IRS does not care what the divorce decree says.
However, the same is not true in the context of a request for innocent spouse relief based on equitable grounds. As background, Section 6015 of the Internal Revenue Code provides for three avenues to innocent spouse relief. The third, most common avenue is under subsection (f) which allows relief when it would be “inequitable” to hold the requesting spouse liable.
To ensure uniform application of the “inequitable” standard, the IRS issued a Revenue Procedure which contains a list of factors to be considered. See Rev. Proc. 2013-34. One factor on the list is whether the requesting spouse has a “legal obligation to pay the outstanding Federal income tax liability.” In this context, the term “legal obligation” is defined as “an obligation arising from a divorce decree or other legally binding agreement.”
So going back to the opening question, when it comes to a request for innocent spouse relief based on equitable grounds, the IRS does care what the divorce decree says.
If you’re navigating the complexities of divorce and facing tax liabilities, it’s crucial to have knowledgeable legal guidance. Our experienced team at Eyet is here to ensure that your rights are protected and your financial interests are safeguarded.
