Divorce and Income Tax Problems: Strategies for Resolving IRS Disputes and Liabilities in Divorce Proceedings

Tax issues can sabotage all aspects of family law, especially divorce and custody proceedings. Of paramount importance, counsel should make helping their clients avoid or remove a tax lien a top priority.

Sometimes the parties are aware of tax issues when they seek divorce. In such cases, they may be able to negotiate settlement with the IRS through one of several options, such as installment agreements and offers in compromise. The IRS also offers taxpayers penalty abatements in some situations. How the liabilities are apportioned and enforced between the parties requires careful planning and drafting.

Other times tax problems are uncovered or arise only during divorce proceedings. Even then, if the divorcing taxpayers have, for example, failed to file tax returns or under-reported tax liability, they still may be able to mitigate the situation with the help of savvy counsel before the IRS or other taxing entity can assess penalities.

At times, counsel will need to seek relief from joint and several liability due to the actions of the other spouse, such as one spounse fling a joint return without the knowledge of the other or failing to report income. Sometimes one spouse will appropriate a refund without the knowledge of the other. A common solution for getting relief from a joint tax liability is for one taxpayer to file for innocent spouse relief, which permits legal and financial relief under certain strict criteria.

Listen as the panel examines the kinds of common and uncommon tax problems present in family law litigation and divorce.