IRS and Jointly Owned Property: 5 Common Scenarios

When one person owes the IRS but an asset belongs to more than one person, the situation can get uncomfortable quickly. A spouse may wonder what happens to the family home. A parent may worry about money sitting in a joint bank account. Business partners may suddenly find that one person’s tax problem is affecting property they bought together.

Joint ownership by itself does not necessarily put an asset beyond the IRS’s reach. The IRS can generally pursue property or rights to property belonging to the taxpayer, including an interest in jointly owned property. At the same time, the other owner’s rights still matter.

What that looks like in practice can vary quite a bit. Here are some common situations.

Scenario 1: Your Spouse Owes the IRS, but You Own the Home Together

Suppose you and your spouse own your home together, but the back taxes belong only to your spouse. You may understandably wonder how a debt that is not yours can affect a house with your name on it.

A federal tax lien can attach to the taxpayer spouse’s interest in property. That does not automatically make the other spouse personally responsible for the tax debt, but it can create problems when the couple wants to sell or refinance the home. The IRS notes that a federal tax lien on a home generally must be addressed as part of a sale or refinancing.

The important distinction here is between the tax debt and the property. You may not owe the IRS yourself, yet the IRS’s claim against your spouse’s interest can still affect something you own together.

That is why the way the home is titled, the applicable state property law, and each spouse’s ownership interest can become important. Jointly owned real estate is not necessarily treated as though the entire property belongs to the person with the tax debt. IRS guidance recognizes that a taxpayer may own only a partial interest in jointly held property.

If this is the situation you are facing, you can also read our article on what to do if your spouse owes the IRS and you own property together.

Scenario 2: Your Name and the Taxpayer’s Name Are on the Same Bank Account

Imagine that an adult daughter shares a checking account with her mother because she helps pay the household bills. Most of the money deposited into the account comes from the mother’s Social Security or retirement income. The daughter later develops an IRS tax debt.

The mother may think, “That is my money, so the IRS cannot touch it.”

Unfortunately, the presence of both names on the account can make things more complicated.

The IRS may levy a joint bank account when the taxpayer has an interest in it. In some situations, a taxpayer’s unrestricted right to withdraw funds under the bank agreement and state law can allow a levy to reach funds in the joint account even when another person contributed the money. In other circumstances, the taxpayer’s actual interest must be determined from the facts.

That does not mean a non-liable account holder has no recourse. IRS procedures recognize that another person may claim ownership of funds that were levied for somebody else’s tax debt. Such a dispute can potentially be treated as a wrongful levy claim.

This is one of those situations where ordinary family arrangements can run into complicated tax collection rules. An account may have been opened jointly simply to make paying bills easier, but that distinction may need to be supported with bank statements, deposit records, or other evidence showing where the money came from.

For more on this particular problem, see our article on whether the IRS can seize a joint bank account.

Scenario 3: You Own Investment Property With a Business Partner Who Owes the IRS

Now consider two business partners who purchased a rental property together. Each owns an interest in the property, but only one partner has an unpaid personal tax debt.

The other partner does not suddenly become responsible for paying that tax bill simply because they own property together. However, the taxpayer’s ownership interest may still be subject to a federal tax lien or other collection action. IRS guidance specifically recognizes that federal tax collection can reach a taxpayer’s interest in jointly owned property.

That can become a very practical problem if the partners later decide to sell, refinance, or restructure ownership of the property. One partner may have done nothing wrong and still find themselves dealing with an IRS lien connected to an asset they share.

You now realize that paperwork that once seemed routine suddenly becomes important. The deed, purchase agreement, partnership records, loan documents, and records of each person’s contributions may help establish exactly what each partner owns.

IRS financial-analysis guidance generally starts by allocating jointly held equity equally unless the owners can demonstrate that their interests are different.

So in this scenario, the real question is not simply, “Does one partner owe the IRS?” It is also, “What exactly does that partner own?”

Scenario 4: A Parent Adds an Adult Child to a Home or Bank Account for Convenience

Families often share ownership for reasons that have nothing to do with taxes.

A widowed parent might add an adult child to a checking account so the child can pay bills. A parent might put a child’s name on property as part of an estate plan. A child might help a parent purchase a vehicle and have both names placed on the title.

Then one of them develops an IRS tax problem.

From the family’s point of view, everyone may know who “really owns” the money or property. The IRS, however, may need to determine what legal property rights the taxpayer actually has. Federal tax collection generally reaches the taxpayer’s property and rights to property, and those rights can depend in part on state law and the ownership arrangement.

A joint bank account can be particularly troublesome because the taxpayer’s ability to withdraw money may matter. If the IRS levies money that another account holder believes actually belongs to them, that person may need to establish their ownership and may have procedures available to challenge a wrongful levy.

This is a good example of why “I only put their name on it for convenience” may not settle the issue by itself. The documents surrounding the account or property can matter just as much as the family’s understanding of the arrangement.

Scenario 5: You Share Ownership of a Vehicle, Boat, or Valuable Equipment

Joint ownership is not limited to houses and bank accounts.

Two people may be named on the title to a vehicle. Family members may jointly own a boat. Business partners may purchase expensive equipment together. If one owner owes the IRS, the taxpayer’s interest in that property can become relevant to collection.

The IRS has authority to levy property or rights to property belonging to a delinquent taxpayer, and IRS guidance specifically states that property in which the taxpayer has an interest may be subject to levy even when it is jointly owned. Vehicles and other personal property can also be subject to seizure in appropriate cases.

That does not mean every jointly owned vehicle or piece of equipment will automatically be seized. It does mean the other owner should not assume that having two names on the title makes the asset untouchable.

For example, suppose two siblings purchase an expensive work truck together. One pays 75 percent of the purchase price, while the sibling with the tax debt pays 25 percent. If the IRS begins looking at the vehicle as a collection source, records showing the purchase contributions, financing, title, and existing liens may become important in determining the taxpayer’s actual interest.

What These Scenarios Have in Common

The details change from one situation to another, but the same issue keeps coming up: joint ownership and sole ownership are not the same thing, but joint ownership does not automatically block IRS collection either.

A lien is also different from a levy. A federal tax lien is the government’s legal claim against the taxpayer’s property or rights to property, while a levy actually takes property or funds to satisfy the debt.

For the person who does not owe the tax, that distinction can become very real. A lien may complicate the sale of a shared property. A bank levy may suddenly restrict access to money. A dispute over who owns an asset may require documents that nobody expected to need years after the asset was purchased.

If the IRS has actually levied property that belongs to someone other than the taxpayer, the non-liable owner may also have rights to challenge the levy. IRS procedures provide for administrative wrongful levy claims and, in certain circumstances, collection appeals or judicial remedies. Deadlines can apply, so this is not something to ignore once a levy has occurred.

Final Thoughts

“Jointly owned” can describe very different arrangements. It might mean a married couple who bought a house together, a mother who added her daughter to a checking account, or two business partners who split the cost of an investment property. Those differences matter when the IRS becomes involved.

The fact that only one owner owes taxes does not necessarily keep the shared asset out of the collection process. At the same time, the other owner does not simply lose their rights because their name appears beside someone who owes the IRS. The ownership documents, the source of the money, the type of property, and the applicable property law can all affect what happens next.

If an IRS lien or levy is beginning to affect property you share with someone else, the Law Office of Steven N. Klitzner can review the ownership arrangement and the IRS collection action to help determine what options are available. Contact us to discuss the situation before an unresolved tax problem becomes a problem for everyone who shares the asset.