'Embezzlement boy is in jail': Dave Ramsey tells a South Carolina woman hit with $8K in her ex's IRS tax debt she may qualify as an 'innocent spouse'

"I run a really tight budget and I have my debt snowball very planned," she explained when she called into The Ramsey Show. "I'm wondering if I pivot from that to take care of this tax debt because it had that notice of lien." (1)

To make matters more complicated, her ex-husband is in jail for embezzlement and, according to Sarah, any payment arrangement he had with the IRS seems to have stopped.

Host Dave Ramsey urged Sarah to investigate because she could qualify for a relief program that she didn't even know exists.

'Embezzlement boy is in jail'

The program is called innocent spouse relief and, according to the IRS, it may relieve some taxpayers from additional tax bills when a spouse understated taxes due on a joint return without the other partner's knowledge. (2)

Sarah earns roughly $130,000 annually and is supporting four children on her own. Ramsey noted that even though the tax debt came from a joint return that was filed when they were married, Sarah may have a chance for this type of relief since she says she didn't know the taxes were unpaid.

Ramsey suggests that the fact her ex-husband is incarcerated for financial crimes could support her case, saying, "That makes the story even better about you being an innocent spouse. The embezzlement boy is in jail."

Importantly, Ramsey and co-host Rachel Cruze warned Sarah not to ignore the IRS, and that she should seek professional help to guide her in her situation.

"You do not want these people in your life," Ramsey said of the IRS. "They have unlimited power, no brains, and they charge all kinds of penalties and interest minute by minute."

Who qualifies for innocent spouse relief?

How would someone know if they fit the bill to file for innocent spouse relief? While qualification rules are strict, the IRS (3) could grant relief if a taxpayer can show:

• They filed a joint return with their spouse
• The taxes were understated due to errors on the return
• They didn't know about the errors
• They live in a community property state

The program commonly applies in situations where there was hidden or unreported income, incorrect deductions or incorrect values given for assets.

The IRS also considers personal circumstances, including financial hardship, abuse or whether one spouse controlled household finances. Taxpayers who apply for innocent spouse relief are also automatically considered for other forms of relief including separation of liability relief and equitable relief.

Separation of liability relief may allow divorced, separated or taxpayers who don't live together anymore to pay only their share of taxes understated on a joint return.

Equitable relief may be available to taxpayers who don't qualify for other relief options but can show it would be unfair to hold them responsible for taxes their spouse understated or underpaid based on their full circumstances. (4)

For divorced taxpayers facing a similar situation as Sarah, here are some suggestions:

Don't ignore the IRS

Even if you are convinced the debt belongs to your ex-spouse, penalties and interest continue to grow until the situation is addressed. Missing deadlines can also limit your options so be sure to seek professional advice as soon as you can.

Consult a tax professional

An enrolled agent, CPA or tax attorney can evaluate the situation and provide you with next steps on how to best proceed and what you may be eligible for.

Monitor your finances

Sarah told Ramsey she has been following a debt snowball plan. If Sarah doesn't get the relief, Ramsey advises that she should prioritize the IRS debt to the very top of any payoff strategy, saying, "It goes to the top of the debt snowball."