Joint return for divorced couple
A couple I know were recently divorced, but since they were still married on
12/31/2023, their settlement agreement requires them to file a joint tax
return for 2023 and to split any refund or costs 50-50. I just did a
run-through on their taxes, and it turns out they will owe around $7000
together, which means each of them will owe $3500 according to their
commitment in the divorce agreement. It appears that one or perhaps both of
them will have trouble coming up with these amounts by April 15th. What
options do they have in the following scenarios?
Scenario 1: One party can pay the $3500 but the other cannot. Will the
IRS accept a partial payment of the $3500 from the person who can pay and
then set up a payment plan with the other party for the remaining amount?
If the second party defaults, can the IRS come after the party was able to
pay their half? Remember, that person fulfilled their obligation under
their divorce agreement.
Scenario 2: If neither party can pay the full amount, can they each
negotiate a separate payment plan with the IRS or do they have to work
together on this and have the same terms?
Three other questions:
1) What are the general options available when someone can't pay their
taxes on time? The IRS website references a 180-day payment plan and then
some kind of longer term plan, but it doesn't state what term or terms are
available.
2) How does IRS determine the interest and penalties that are owed under
these plans?
3) If the parties determine that they can't pay the total by April 15th and
have to go on a payment plan, is there any value at all in getting a filing
extension to October 15th? Since all calculations are based on the April
15th date anyway, I'm not sure what value there would be in doing an
extension.
Comments
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This article from the community might help. If they file an extension, they would still have a growing interest on the amounts they can't pay, but at least there won't be an added penalty for not filing on time.
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But in this case there is no problem in filing the return on time. They just can't make the payments on time. My question was whether filing an extension would have any impact on the amount of money they owe. In other words, should you file on April 15th and arrange a payment plan with the IRS at that time or file an extension to delay filing until October 15th and do the payment plan then. In both cases, it seems that interest and penalties will be calculated from April 15th.
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Your understanding is correct, that penalties and interest will be calculated based on the ORIGINAL due date of the return (April 15). The extension is only to file, not to pay.
If the return is timely filed, the failure to file penalty won't apply, only the failure to pay penalty.
