True Love Can Wait (for You to Settle Your Tax Debt)
Picture this: you are daydreaming about your significant other as you shop for an engagement ring at Tiffany’s. You feel pure bliss as you reminisce about the many years you have spent with them, and then imagine the hopefully numerous years you will spend together in the future. As you look at different rings, imagery of white picket fences, dogs, and 2.5 kids running around flood your mind. In the haze of love and emotion, you are forgetting one thing: your potential soulmate may be drowning in tax debt. With the IRS hiring 87,000 new agents, it is no secret that they seek to make up the make up the tax gap, which now numbers in the hundreds of billions of dollars. They will seek to make up the gap with unlucky taxpayers. While marriage can be a beautiful thing, tax debt can be an obstacle in marital bliss. Because of this, it is important to understand the effects of tax debt on your marriage
Fortunately, in most circumstances, one spouse’s tax debt is not the other spouses tax debt. This means that in theory, the other spouse should not be affected by their spouse’s tax debt. In practice it seldom works that way. Most married couples, in some shape or form, co-mingle finances: this can include cohabitation, joint bank accounts and joint lines of credit. When it comes to tax debt, the amount of past due liability can seriously strain the finances of a household. For example, many people have delinquent tax debt that is already in the stages of where a lien has been filed. If this is the case, making large financial purchases such as homes and vehicles will be (1) expensive because of the higher interest rate that lenders will charge, or (2) impossible as many lenders are weary of lending when a 3rd party (the IRS) has greater priority in the property. Furthermore, when it comes to the IRS’s processes of collecting debt, unless property and accounts are very clearly partitioned between each spouse, it may be difficult to show what property belongs to which spouse. This is important because the IRS cannot seize the innocent spouse’s property to satisfy the separate debt of the offending spouse.
If you have honeymoon travel plans, your spouse’s tax debt could easily put a damper on those plans. This is because your ability to travel out of the country can be in jeopardy once the IRS identifies your tax debt as meeting the definition of “seriously delinquent.” Seriously delinquent tax debt is an individual's unpaid, legally enforceable federal tax debt totaling more than $55,000 (including interest and penalties) for which (1 ) a notice of federal tax lien has been filed and all administrative remedies under Internal Revenue Code Section 6320 have lapsed or been exhausted, or (2) a levy has been issued. Once tax debt is certified as “seriously delinquent” as described above, the U.S. Department of State may revoke your current passport, and will deny subsequent passport applications. The good news is that once you clear up the tax debt by either paying in full or entering into an installment agreement, the certification will be reversed, allowing you to travel freely out of the country. Unfortunately, you might already have a trip planned before finding out about the debt: this is why it is important to consider this ahead of time.
If you are considering popping the question to that special someone, or you already have (in which case, shame on you), it may make sense to speak to a tax attorney to show you the lay of the land when it comes to your future spouse’s tax issues, to the extent that issues are present. A tax attorney will be able to pull you and your spouse’s records and explain where you both stand, as well as advise you on the correct courses of action to solve your problems. If you want extra piece of mind going into marriage, please contact us at the Wilson Firm so we can tie up your loose ends before you tie the knot with your spouse.
 Internal Revenue Service, Understanding Your CP508C Notice, CHI. TRIB., Jan. 20, 2022, https://www.irs.gov/individuals/understanding-your-cp508c-notice#:~:text=Seriously%20delinquent%20tax%20debt%20is,lapsed%20or%20been%20exhausted%2C%20or.