Let’s say Cindy’s husband, Tim, didn’t file the couple’s taxes for five years, and Cindy didn’t know. Tim has since passed away, and Cindy has been trying to sort out his finances.
Sadly, she fears she may be on the hook for about $80,000 in unpaid taxes because Tim failed to file and pay. But experts say it’s not so simple.
Are you responsible if your dead spouse failed to file taxes?
The good news for Cindy is that she’s not necessarily responsible for the entire $80,000 in IRS debt that her husband likely left her to deal with.
“If no returns were filed, there’s no joint return … she generally isn’t liable for her husband’s personal tax bill,” David Sussman, founder and CEO of Valcor, a debt mediation firm, told Moneywise. “That debt belongs to his estate.”
Stephen A. Weisberg, principal attorney and founder at The W Tax Group, agreed, telling Moneywise, “Whether the widow owes; it depends on whose name the tax is in. A spouse becomes liable for the other spouse’s tax by signing a joint return, and if nothing was filed for five years, she didn’t sign anything.”
However, Sussman warned of three traps that may leave her on the hook: Living in a community property state, which puts marital property at risk; signing for a family business that failed to pay payroll tax; or inheriting assets from the estate that should go toward settling tax debt.
“Taxes owed by your husband’s estate should generally be paid or settled prior to distributions from the estate,” Logan Allec, a CPA and owner of tax resolution company Choice Tax Relief, told Moneywise. “Under certain circumstances, the IRS can actually claw back assets that were distributed that should have been put toward the tax debt.”
Unfortunately, if it turns out Tim did file returns, Cindy may have a bigger problem. “If returns were filed jointly, both spouses are ‘jointly and severally liable.’ The IRS can pursue the full balance from the surviving spouse, even though it was the husband’s doing,” George Varimezov, founder and managing CPA with VarStan Bookkeeping Services, told Moneywise.
Rackaye Christie, founder and principal advisor of Manifest Tax Service, also had bad news and good news for Cindy. The good news: “If the IRS has filed substitute returns on her husband’s behalf, those are treated as married filing separately, which doesn’t pull her in,” Christie told Moneywise. The bad news: “She’s still responsible for tax on her own income for those years.”
