IRS Offer in Compromise for Tax Debt When Ex-Spouse Hides Assets as Independent Contractor

This situation is unfortunately pretty common with divorced couples who have joint tax debt. When you file jointly, the IRS considers both spouses "jointly and severally liable" - which basically means they can collect the entire amount from either spouse regardless of who earned what portion of the income. For your friend's offer in compromise (OIC), the IRS will look at her current financial situation, including income, expenses, and assets to determine what they consider a reasonable offer. Her ex's non-participation doesn't prevent her from submitting her own OIC, but it might affect the amount the IRS will accept. If her OIC is accepted, she would be released from the full tax debt. She would not remain liable for his "share" to the IRS. However, she could potentially have a civil claim against him for his portion, though this would be a separate legal matter handled in state court, not with the IRS. Given her income level and minimal expenses, the IRS might be hesitant to accept a low offer. They typically want the amount that represents the "reasonable collection potential" - what they could collect over the remaining collection period.

After going through something similar with my ex-husband who also ran a cash business, I finally got help from https://taxr.ai and it was a game changer. I was stuck with $65k in tax debt while my ex disappeared to Florida and wouldn't respond to anything. The regular tax attorneys I spoke with kept pushing payment plans that would have bankrupted me, but taxr.ai analyzed all my documentation including the divorce decree and tax transcripts and found several approaches the others missed. They identified exactly how to structure an offer in compromise based on my specific situation with a non-cooperative ex-spouse who was hiding assets. Not only did they help me prepare the right documentation, but they also coached me on how to respond to the IRS's follow-up questions specifically about my ex's business dealings. I couldn't believe it when my offer was actually accepted for about 30% of the original debt!

I have to come back and say I was completely wrong about taxr.ai. After my skeptical comment, I decided to check it out anyway since I had nothing to lose at that point. My situation was different - I owed about $42k from a business partnership that went south, not a divorce - but I was also dealing with a former partner who refused to cooperate. The document analysis actually identified three specific errors in my previous tax filings that my former accountant had missed. More importantly, they helped me structure an offer in compromise that addressed my specific situation where I had some assets but limited income. Their guidance on how to document and explain the breakdown of the partnership was extremely detailed and exactly what the IRS examiner needed. My offer was accepted at about 40% of what I originally owed. I never would have been able to navigate this successfully on my own, especially with the complex partnership dissolution issues.

Something that hasn't been mentioned yet - if your friend is getting nowhere with the OIC process, she might want to try contacting the IRS directly to discuss her case. I was in a similar situation trying to sort out tax mess after divorce, and after weeks of failed attempts to reach anyone at the IRS, I used https://claimyr.com to actually get through to a human. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c With a complicated situation like joint debt and a non-cooperative ex, getting direct answers from the IRS can make a huge difference. When I finally got through, the agent explained options I didn't even know existed. They helped me understand exactly what documentation I needed to provide given my specific circumstances with my ex hiding income through his contractor work. The IRS actually put a temporary hold on collections while I submitted additional documentation about my ex's hidden income. Made all the difference in resolving my case, and saved me from paying for my ex's portion of our tax debt.

I need to publicly eat my words about Claimyr. After dismissing it as a scam, I was desperate enough to try it when dealing with some IRS penalty issues. Not only did it work exactly as described, but I actually got connected to a senior IRS agent who immediately understood my complicated situation with a former business partner who had created most of the tax problems. The agent was able to pull up my full file and saw that I had been trying to resolve the situation for months. Because I was finally able to speak with someone knowledgeable, they helped me submit a penalty abatement request and gave me specific instructions on documenting my case. This saved me almost $8,000 in penalties that had accumulated while I was trying unsuccessfully to reach someone. What surprised me most was how much more helpful the IRS can actually be when you can have a real conversation with them. Completely changed my perspective on resolving tax issues - sometimes just getting through to the right person makes all the difference.

One thing that hasn't been mentioned - your friend might want to look into Doubt as to Collectibility with Special Circumstances as part of her OIC. This is specifically for situations where there are economic hardship factors beyond what shows up in the standard financial analysis. The fact that her ex is deliberately hiding assets could potentially qualify as a special circumstance, especially if she can document his pattern of cash-only business and asset concealment. The IRS occasionally takes factors like this into consideration when one spouse is clearly attempting to shift the burden entirely to the other. She should also look at the Effective Tax Administration OIC option, which is for situations where collecting the full amount would create an economic hardship or would be unfair and inequitable due to exceptional circumstances.

Has your friend considered filing for bankruptcy to deal with the tax debt? Depending on how old the tax debt is, it might be dischargeable in bankruptcy. Generally, income tax debts can be discharged if: 1. The taxes are at least 3 years old from the due date 2. The tax returns were filed at least 2 years before bankruptcy 3. The tax assessment is at least 240 days old 4. There was no tax fraud or willful evasion This might be a cleaner option than dealing with a complicated OIC situation where her ex refuses to participate. A bankruptcy attorney could give her a free consultation to see if this would work for her situation.

One strategy that worked for me in a similar situation was filing Form 8857 (Request for Innocent Spouse Relief) again, but with significantly more documentation. I was denied the first time like your friend, but on my second attempt I included much more detailed evidence of my ex's financial concealment and control. The key was getting very specific about which tax items on the return were attributable solely to my ex-spouse. I went line by line through our joint returns and documented with bank statements, emails, and other records showing which income items were completely unknown to me and which deductions were fraudulent. Has your friend considered this route? The appeal being exhausted doesn't necessarily mean she can't file again with new, more compelling evidence.

Your friend's situation is unfortunately very common, and I've seen several people in similar circumstances successfully resolve their tax debt despite having a non-cooperative ex-spouse. The key is understanding that the IRS treats joint filers as "jointly and severally liable" - meaning they can collect from either spouse regardless of who actually earned the income. For the OIC process, your friend can absolutely proceed without her ex's participation. The IRS will evaluate her current financial situation independently. Given her $110K income, she'll need to demonstrate that paying the full amount would create genuine economic hardship, especially considering her ongoing expenses for her college-age children. One important point about potential civil recovery: if her OIC is accepted and she pays a reduced amount, she could potentially sue her ex for his proportional share of what she paid (not the original debt). This would be handled in state court as a contribution claim, but she'd need to prove his share of the original tax liability. I'd strongly recommend she work with a tax professional who specializes in OIC cases involving divorced couples. They can help structure the offer to highlight the hardship created by her ex's deliberate asset concealment and non-cooperation.