Posted on: 29 June 2016Share
When you discover that you owe back taxes from a joint return, it can be scary and overwhelming. Many spouses in this situation knew little or nothing about the tax situation, or even what was on the tax return to begin with. So, what can you do now that you find yourself facing the taxman? Here is a guide to help get through this time.
Don't Ignore the Information. The worst thing that you can do at this point is to ignore what you've learned or disregard any notifications you have received. The IRS has broad collection powers, so you may find yourself the subject of liens or levies or lose the ability to fight the debt itself if you wait too long. Keep in mind, too, that while you won't go to jail for unpaid taxes, you can end up in hot water for trying to trick, cheat or outwit the taxman. Honesty and speed will be your best friends.
Meet with a Tax Attorney. At this time, you will likely want to get help from a tax professional to determine if the tax debt is correct. If the amount is large, if the collection process is ongoing, or if it involves multiple years, a tax attorney is your best bet. You may also want to engage a CPA for current or future tax-return preparation, but you will need legal help to assert many of your rights and options in dealing with the existing debt. It's wise not to go it alone if you can avoid it.
Know Your Options. Your tax attorney can help you understand what you may be able to do to legally reduce or correct the tax debt. Some of these choices will include:
- Paying by installment agreement if the amount is, indeed, correct.
- Amending or filing past returns in situations where deductions may have been misused, business expenses were not taken, or returns were not even filed.
- Requesting an offer in compromise if you're otherwise in good standing and you have little ability to pay the full amount.
- Declaring bankruptcy if your debts outweigh your assets and you have other debt issues.
- Applying for innocent spouse relief (separation of tax liability) if you genuinely did not know of an understatement of taxes made by your spouse (or former spouse).
Respond to the IRS. Be sure to respond to any letters or notices you have received from the IRS, usually with the help of your tax attorney. There are usually options available in the IRS letter to indicate that you do not agree with the amount of the debt and information on how to request other forms of relief or make payments. You may even be able to work with the Taxpayer Advocate Service if needed.
While it's no fun to deal with a tax debt you didn't know about or understand, you still have many rights and alternatives to lessen the debt's impact. By knowing what you should do next and where you can get help, you can reduce your stress and, hopefully, your tax bill.
For more information, consult a law firm such as Townsend & Jones LLP.