An Anonymous poster recently wrote me worried about her husband's assets. They live in California (a community property state). They file “Married Filing Separately. " She owes for three years of back taxes. He owes nothing. Everything is in his name, including the home they both live in.
Anonymous wants to know:
"Will the IRS put a lien on [the] house since we are married? Can the IRS directly effect my husband (ie. garnish his paycheck, hit his credit, seize his assets)?"
The answer, unfortunately, is: Yes. The IRS can place a Federal Tax Lien on the home and actually seize the assets of the husband in this case even though he has absolutely nothing to do with the federal tax liability itself.
You see in a normal situation (non-community property case), the person owes the debt if their name is on the tax return. So if you file “Married Filing Jointly" then you both owe the IRS taxes, even if one of you worked and the other stayed home to take care of the kids because both of your names are on the return. And the same rule applies if you file “Married Filing Separately" in that only the person whose name is on the return with the debt owes the money. The other spouse (if they don't owe for their return), owes nothing and therefore the IRS cannot come after this non-liable spouse.
However, in community property states it's a little different. Actually, it's the same in the sense that the non-liable spouse still does not owe the taxes in question. The difference is regarding the collection of that tax and the property laws of the individual state.
In community property states, all assets are viewed as belonging to BOTH the husband and the wife. So in Anonymous's case, even though her husband owns the home in his name only on the mortgage and title, she owns it also under the community property laws. Therefore, the IRS can place a lien on the house and even seize it if they want, not because her husband now owes the tax debt (he still doesn't owe the IRS anything), but because that house is considered Anonymous's house as much as her husband's under California state law.
It's usually the same with other assets including wages. The bottom line is that you do NOT want to be in a community property state if you have one spouse who owes the tax and the other who does not, because in the end BOTH of you are equally effected by the ability of the IRS to collect the one debt from marital property.
You can request certain relief for your husband under IRS rules similar to Innocent Spouse relief. While this is a good solution to your problem on paper, actually getting that relief can sometimes be more trouble than it's worth.
My advice Anonymous is to get your missing returns filed as quickly as possible (the IRS cannot set up even a pay plan if there are missing returns) and get yourself into an Installment Agreement or Currently Not Collectible (CNC) status right away. That's the only way in this case to safeguard your husband's assets short of paying the entire debt off.
SIDE NOTE: There are nine community property states in the Unites States. They are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin. In Alaska you can “opt-in" to be considered as having community property status.
Jack Manhire is an 11-year veteran tax attorney who specializes in IRS tax problems. You can find out other ways of getting your IRS problem behind you by visiting his blog for free help at http://taxhelpirs.blogspot.com/