That's a really good point about state taxes that I hadn't considered. I'm in Texas which doesn't have state income tax, but we did live in California for two years during our marriage. Should I be concerned about that?

Yes, absolutely contact California's tax authority (Franchise Tax Board) immediately! California is extremely aggressive about collecting back taxes, and they have a lookback period of up to 20 years for tax fraud. If your ex didn't pay proper taxes while you lived there, California could come after you separately from the IRS. California does have an innocent spouse program, but you need to be proactive about it. Don't wait for them to find you. The good news is that if you get innocent spouse relief from the IRS, California generally follows the federal determination, but you still need to file the proper paperwork with them.

Adding to this excellent advice - be prepared for a long process. My innocent spouse case took 14 months to resolve completely. The IRS isn't known for speed. Make sure you respond to every letter they send within the timeframe they specify, and always send things certified mail so you have proof of delivery.

This is actually good advice. I had selected paper check on my return but they sent direct deposit anyway using my bank info from the previous year. Worth checking both!

I just tried but couldn't create an account because they want me to verify identity with a credit card or loan number and I don't have either of those right now. Seems like there's no easy way to get info from the IRS unless you're already financially established. So frustrating!

Thank you for this detailed response. We've checked the letter more carefully and it does have a CP504 notice number on it, so I think it's legitimate. What's the difference between Currently Not Collectible status and an Offer in Compromise? Would either of these permanently resolve the debt or just delay collection?

Currently Not Collectible (CNC) status temporarily pauses collection actions when paying the tax debt would create an economic hardship. The debt doesn't go away, but the IRS stops trying to collect while you're in financial hardship. The IRS reviews your status periodically (usually annually) to see if your financial situation has improved. An Offer in Compromise (OIC) is a settlement agreement where the IRS accepts less than the full amount owed to resolve the debt permanently. You have to demonstrate that you cannot pay the full amount due to financial hardship, and they consider your income, expenses, asset equity, and ability to pay. If accepted, you fulfill the terms of the offer (usually a reduced lump sum or payment plan), and the debt is considered paid in full.

Innocent Spouse Relief only applies if the debt is from a joint tax return where one spouse didn't know about income that wasn't reported or incorrect deductions. From OP's post, it sounds like this is solely the wife's tax debt, not joint debt, so probably wouldn't apply here.

Thanks for clarifying! You're right - I missed that detail that it's solely in her name. In that case, exploring the hardship provisions others mentioned is probably the better route.

Isn't that technically tax fraud though? Even if it's a small amount? Not judging, just curious about the potential consequences.

Technically yes, but realistically the IRS operates on a threshold system even if they don't publicly admit it. The cost of pursuing someone for a few dollars in tax would far exceed what they'd collect. I'm not advocating tax evasion for significant amounts, but there's a practical reality to how tax enforcement works. The IRS themselves have had their resources cut for years and focus on larger discrepancies. That said, everyone should make their own decision based on their comfort level with risk - even if that risk is extremely minimal for amounts this small.

I used Cash App Taxes last year for my returns including some stock sales. It was completely free and handled Schedule D without issues. The interface isn't as polished as TurboTax, but for free you can't complain! It asks straightforward questions and walks you through everything. Definitely recommend for simple-to-moderate tax situations with some investment income.

Lol I did the same thing when I first moved to Texas! But there are still 9 states with no income tax right? Florida, Texas, Washington, Alaska, Nevada, South Dakota, Wyoming, New Hampshire (only on dividends and interest), and Tennessee if I remember correctly.

You're right, there are 9 states with no income tax. Florida, Texas, Washington, Alaska, Nevada, South Dakota, Wyoming are fully income-tax free. Then New Hampshire only taxes investment income but not wages, and Tennessee phased out their tax on investment income so it's now completely income-tax free too. It's amazing how many people in these states still worry about state returns! The Direct File confusion is only relevant if you actually have to file a state return in the first place.

I had a similar situation last year with property in two states. Direct File isn't great for multi-state situations in my experience. It'll handle your federal return fine with the SSA-1099 and rental income, but for the Georgia state return, it gets complicated. When it transfers data to Georgia's system, it might not properly allocate which income is subject to Georgia tax vs what's exempt. I ended up using a paid preparer for this specific situation.