QUESTION

What can I do to make sure that my husband's taxes do not affect me during a divorce?

Asked on Oct 28th, 2011 on Taxation - Oregon
More details to this question:
My husband and I started a church. He controls all money for the church and sets his own income. He has employees that are paid between $175.00 to $400.00 weekly. Should they be receiving a 1099, and should my husband be also filing taxes? I am considering a divorce and do not want to be held liable with the IRS with him. I have never received an income from the church, written a check, or made a withdrawal from the bank account.
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2 ANSWERS

Tax Law Attorney serving Birmingham, AL at Meadows & Howell, LLC
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If the church was organized as a business entity (LLC, S Corporation, C Corporation, etc.), then the entity will be liable for any tax debt. Thus, you will not be liable for the debt yourself. However, both federal and state revenue agencies can issue an assessment against individuals who were responsible for remitting taxes on behalf of the business entity. If your husband is personally assessed for the business's tax debts, then a revenue agency may attempt to include you as liable to the debt if you filed jointly while married. Ultimately, you should be able to easily avoid any tax liability, as they should not attempt to personally assess you simply because your husband was personally assessed as the responsible business owner, but sometimes mistakes are made and their automated system can "rope in" the spouse for any and all personal assessments. If, however, the church was not organized as a business entity, but rather your husband was just running it as an official DBA (doing business as), and thus reporting the business income on his personal returns, then you will initially be held liable for the tax debt as well. This is due to the fact that, as a spouse filing jointly, you are jointly responsible for all taxes which are assessed based upon your personal return. Even if this were the case, you would likely be able to have the debt removed from your name by filing for innocent spouse relief, as you had no involvement with the business and were not responsible for remitting any taxes due. As far as the payment of taxes, I can't give you an accurate answer without more information. The types and deadlines for taxes due will depend upon whether a business entity is in existence, what type of business entity is in existence, the nature of the work being done by individuals, whether those individuals can be classified as employees or independent contractors, etc.
Answered on Nov 14th, 2011 at 6:15 PM

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If you are concerned that there might be problems with the income tax reporting don't sign a joint return; file your own separate return reporting your own income. A joint return makes you jointly liable with him for tax liabilities unless you can convince the IRS that you had no knowledge of and did not benefit from the amounts he did not disclose. This often takes time and a lot of legal or accounting fees. You should be aware that filing separately rather than jointly will increase the total tax liability for the two of you. If the service providers are employees, he should withhold employment and income taxes-preferably using a payroll firm to make sure the amounts are correct and paid timely because the penalties for messing up can be very significant. If they are independent contractors, they can be given a 1099, but not many people employers treat as independent contractors really are employees. Treating them as independent contractors can result in significant liability by the employer.
Answered on Oct 28th, 2011 at 4:11 PM

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