My spouse does not pay income tax. He says the IRS makes you think your income (your paycheck) needs to be reported. He says the tax code shows that’s not true. Right or wrong, this prevents us from using his income for a mortgage. This greatly decreases how much money we have to buy a house. I am pretty discouraged and not sure what I should do – and if I need to protect my assets because the IRS is not someone I want to cross. Please advise.
– Grace in Florida
Howard Dvorkin, CPA responds…
You don’t need a financial expert to answer your question, Grace. It’s been answered many times, and by reputable sources…
CNBC: “You will be penalized if you don’t pay taxes. Interest and penalties will begin to accrue on the outstanding amounts. As time goes on, the IRS may even seize a portion of your wages until the debt is settled.”
U.S. News: “If your unpaid back taxes start to pile up – generally once you owe the IRS $10,000 or more – and if you own or are paying down a mortgage on property, the federal government could put a lien on your property.”
Business Insider: “If the IRS finds that there’s been ‘willful neglect to file a return’ on your part, the IRS can then look at your entire tax history in search of fraud.”
Not paying the IRS will work until the day it doesn’t
These aren’t possibilities. They’re inevitabilities. Your husband will be hit with a bill for all the taxes he hasn’t paid, plus massive penalties for his obstinance. If your husband can’t pay, the IRS can garnish his wages. If he’s retired, the IRS will take his Social Security instead.
I don’t know your husband, but in my three-decade-long career, I’ve known many people like him. If he reads these words, he’s likely to reply, “Hey, Howard, I’ve gotten away with this for years. So obviously, you have no idea what you’re talking about. I’m calling the IRS’s bluff, and I’m winning.”
Your husband would be correct. He is winning. Until the day he loses everything.
The IRS moves like an Arctic glacier. It doesn’t seem to be going anywhere, until the day a huge piece crashes into the ocean and a giant iceberg is born. That iceberg will drop on top of both you and your husband.
A spouse can be liable for their partner’s bad tax choices
That’s right, Grace. What your husband is doing – or more precisely, not doing – will crush you, too. As this Debt.com report mentions, it’s one thing if your husband ran up a big tax debt before you were married. But it seems he’s been doing this for years.
Let me quote another reputable media outlet. Market Watch flatly reports, “You and your spouse will both be on the hook for up to 100 percent of any federal income tax underpayment for the year.”
In other words, the IRS can go after you for what your husband owes. The IRS has something known as Innocent Spouse Relief that can protect you, except for one thing: You’ve known about this for a long time.
So, you have bigger problems than just worrying about a mortgage, Grace. Even if you divorce your husband, you can still be on the hook for what he owes. As Market Watch so aptly puts it: “Even if your divorce decree states that your ex is responsible for any unpaid taxes from your joint-filing years, the IRS is not bound by that agreement, and the federal government will just go after whichever person appears to be the easiest to collect from.”
How to protect yourself if your husband refuses to pay taxes
I’ve quoted all these other sources so you can grasp the undisputed truth of your situation, Grace. Your husband will get caught. It might not be this year or next year or even the year after that. But he’s playing with a ticking time bomb, and at some point, it will go off.
Regardless of what your husband thinks, you need to meet with a tax lawyer yourself. If that expert can persuade your husband, perfect. If not, you need to protect yourself. You can get a free consultation that won’t obligate you to do anything, but it might open your eyes to everything.
