Spouse's old tax liability

[jenn08]

What is the name of your state? California

Prior to our marriage, my husband incurred tax debt stemming from the sale of stock options in 1999. Like many others , the options he was going to exercise to pay taxes became worthless, resulting in his owing twice as much in taxes than he received in revenue.

He used the options for a down payment on a house. Since CA. is a homestead state, both Ca. and Feds put tax liens on his home instead of seizing the property. In the past year, CA,. has garnished his wages to pay off the debt in 4 years ($28K/yr). The IRS has taken no action as of yet, but obviously could attach his wages at any time.

We've recently learned about the Offer In Compromise (OIC) possibility. His only real asset is the house, and with the market hitting bottom, his equity is plummeting with it. Rather than try to get a home equity loan to pay the debt in full, the possibility of OIC was raised. As long as he gets an updated appraisal on the house that reflects the market downturn, he could make much lower payments and get a better deal overall.

I have two questions regarding this issue. First, would the IRS consider my income in evaluating the OIC? We filed taxes separately, and currently I am a stay at home mom earning very little in contract wages. However, at some point I need to resume my career and could go back to earning six figures. Would my income be protected as long as I file separately? And finally, could the IRS put me on the hook for a debt that he acquired years before we married?

Frankly , had I known the size of the debt, I would not have married him, and would have kept a number of deductions I had to sacrifice in doing a married filing separately return. Do we need to divorce to keep me from getting sucked in ?

And last but not least, what is this 24 month processing period the IRS imposes? Seems like to me that the IRS just accepts money for two years and watches to make sure income and assets don't increase enough to justify rejecting the offer and swooping in and seizing whatever they can get their hands on..... If so, would that be my income?????

Thanks for your consideration!

[LdiJ]

Originally Posted by jenn08

What is the name of your state? California

Prior to our marriage, my husband incurred tax debt stemming from the sale of stock options in 1999. Like many others , the options he was going to exercise to pay taxes became worthless, resulting in his owing twice as much in taxes than he received in revenue.

He used the options for a down payment on a house. Since CA. is a homestead state, both Ca. and Feds put tax liens on his home instead of seizing the property. In the past year, CA,. has garnished his wages to pay off the debt in 4 years ($28K/yr). The IRS has taken no action as of yet, but obviously could attach his wages at any time.

We've recently learned about the Offer In Compromise (OIC) possibility. His only real asset is the house, and with the market hitting bottom, his equity is plummeting with it. Rather than try to get a home equity loan to pay the debt in full, the possibility of OIC was raised. As long as he gets an updated appraisal on the house that reflects the market downturn, he could make much lower payments and get a better deal overall.

I have two questions regarding this issue. First, would the IRS consider my income in evaluating the OIC? We filed taxes separately, and currently I am a stay at home mom earning very little in contract wages. However, at some point I need to resume my career and could go back to earning six figures. Would my income be protected as long as I file separately? And finally, could the IRS put me on the hook for a debt that he acquired years before we married?

Frankly , had I known the size of the debt, I would not have married him, and would have kept a number of deductions I had to sacrifice in doing a married filing separately return. Do we need to divorce to keep me from getting sucked in ?

And last but not least, what is this 24 month processing period the IRS imposes? Seems like to me that the IRS just accepts money for two years and watches to make sure income and assets don't increase enough to justify rejecting the offer and swooping in and seizing whatever they can get their hands on..... If so, would that be my income?????

Thanks for your consideration!

You are not responsible for any tax debt that he incurred prior to the marriage. However, yes, the entire household income would have to be taken into consideration in an OIC. Also, since he does have an asset, a home, the IRS tends to put liens against the home rather than accepting an OIC.