Live in Minnesota. My estranged husband died with medical debt and back taxes. Will the IRS take my life insurance to pay medical bills (we were separated) and our joint tax debt? (I filed for Innocent spousal relief). Does accepting and having the life insurance sway the IRS in how much to settle with me?
IRS does not collect medical bills, so no on the medical bills. Depending on how much is owed, financial disclosure may not be necessary for an installment agreement pay plan. Otherwise, full financial disclosure is required and yes they would want the life insurance proceeds for a joint tax debt. As long as your husband's estate is not the beneficiary, it is not an asset that the IRS can take for his tax debts.
First of all, you should seek representation by an experienced probate attorney to determine your liability for your deceased husband's medical bills. Under the common law doctrine of necessities, which has been codified in most states, a surviving spouse is liable for paying the medical bills and other necessary expenses of a deceased spouse.
Secondly, it is unclear whether you are liable for your deceased husband's tax debts based on the information provided in your question. If the debt relates to years where you filed jointly, then you are liable, unless the IRS grants your request for some kind of spousal relief -- but that is discretionary with the IRS, so you shouldn't count on it. With respect to holding off on cashing in on the life insurance policy and not including that amount on a settlement application that you file with IRS, I would strongly advise against doing that. Lying on an application to the IRS -- which you sign under oath -- could be interpreted as tax fraud and you could end up in jail. (Not likely, but technically, this could happen) Collect on the insurance and hire a good tax resolution specialist to represent you with IRS.
Ms. Willi is a tax attorney, CPA, and Ohio-Certified Specialist in Estate Planning, Trust & Probate Law, with offices in Westerville, Ohio. She serves client families and private business owners throughout Ohio. Ms. Willi responds to Avvo questions as a public service to help educate and provide general guidance to questioners, but her responses are not legal advice and do not create an attorney-client relationship. Her posts are provided for informational purposes only and are not a substitute for advice provided by an attorney or licensed tax professional. Her phone number is 614-890-0500 and her website is www.willilaw.com.
There isn't enough information. If you filed joint returns, then the tax liability is also yours. If he filed separate returns or returns from before you were married, then you are not liable for his taxes. It also depends on how the insurance was paid out. If it was paid out directly to you and it is the husband's separate tax liability, then the IRS does not have a claim on it. You need to talk about the specifics of your situation with a local tax attorney who is familiar with you state's probate laws.
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