Question: My husband’s father owned a convenient store that he put under my husband’s name. His father didn’t pay taxes for a year — and now the IRS is going after my husband, since the store is under his name!
He didn’t acquire any profits, as it was his father’s store. My husband was in Texas at the time his father had this issue in Illinois. We are dealing with a $40,000 fee. Is there a way to get out of this situation?
This happened before we got married. Can the IRS come after my paychecks?
— Nida in Pennsylvania
Jacob Dayan answers…
This question is very difficult to answer with the information provided, but I’ll do my best to try and put your mind at ease.
First off, in the interest of being completely transparent, this is a very serious situation and should be handled with extreme urgency!
Hi, I’m Jacob Dayan, CEO, and co-founder of Community Tax and this is Taxing Questions. Here’s a specific situation that happens all too often: a parent sells or gives a business to a child, but that business hasn’t paid taxes in a long time. The child didn’t know about it, so they didn’t budget for it. Now the IRS comes calling with a five-figure tax bill. Is that child on the hook for the sins of the parent?
As for most things’ taxes, the answer is – maybe. In fact, unless a parent deceived their child, the answer is probably. What bad things can a parent do? Well, for starters, if the child’s information was used without their knowledge or consent, that’s identity theft.
I get into the details on Debt.com. But remember this, whether you start, buy, or were even handed the business spend some time considering the tax implications or you better be prepared to spend a lot of money later.
Now, that being said…
If he didn’t know his dad committed tax identity theft
If your husband’s information was used without his knowledge or consent, then you should consider that identity theft — and treat it like a crime. Here’s what your husband should do:
- File a police report locally.
- Contact the IRS and let them know this was caused by identity theft.
- Your husband will need to file an Identity Theft Affidavit with the IRS, explaining all the details he knows to be true regarding the situation.
- In the Identity Theft Affidavit, he should include the police report and any notices about the issue.
While it won’t be a short process, odds are you can resolve this situation eventually.
If he did know
What if your husband consented to the business being owned under his name and run by your father-in-law? Then, unfortunately, he can be held responsible for any tax responsibilities for the business.
Since Texas is a community property state, this also means that you can be collectible for any of your husband’s tax debts, even though you are not liable for them. If both you and your husband are collectible for the debt, then there are options available to protect your paycheck. But depending on what stage of collections the IRS is in, time may be of the essence.
What to do now
I highly recommend seeking representation by a licensed tax practitioner. This situation is not uncommon for our professionals, and we would be happy to have a preliminary discussion and investigate your situation. Either way, we wish you and your husband the best of luck in resolving this matter!
Jacob Dayan is co-founder of Community Tax LLC, a full-service tax company helping customers nationwide with tax resolution, tax preparation, bookkeeping, and accounting.