Can a divorce disrupt an offer in compromise with the IRS?

The last thing anyone needs after a divorce is trouble with the Internal Revenue Service. However, there are several tax considerations that an individual should heed in order to avoid a post-divorce tax controversy.

In particular, an individual should understand how the IRS regards his or her property ownership and liabilities after a divorce. In addition, an individual’s tax filing status might change. Taxpayers who have a minor child, dependent or other qualifying person living with them after the divorce may be able to file as head of household. That filing status may offer tax advantages over a single filing status, such as a higher standard deduction and a lower tax rate.

A divorce may have altered the ownership of certain assets, such as securities, life insurance or retirement plans. In addition, health benefit policies may have changed. Creating an individual banking account will help clarify some ownership questions, as will taking out separate credit cards and closing any joint accounts after a divorce.

A divorce can also impact any negotiations in a pending tax controversy with the Internal Revenue Service. Arrangements like an installment agreement might remain the same, where the IRS generally collects 100 percent of any tax assessment. However, options like an offer in compromise are based on a taxpayer’s ability to pay. Such determinations might be made at the outset of negotiations, yet changed job or support obligations after a divorce might affect those calculations, possibly making an individual ineligible for the OIC. As a law firm that focuses on tax controversies with the IRS, we understand the factors and deadlines associated with various tax settlement options.

Source: Accounting Today, “Tax Alpha: The Divorce Checklist,” copyright 2015, SourceMedia

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