IRS can foreclose on a jointly owned home to pay tax owed by one spouse. But the other spouse must receive his or her share of the sales proceeds. And the Service must first get federal court approval before selling the property.
What if the innocent spouse has only a homestead interest in the property? The same rules can apply, as shown here. A couple lives in a home in S.D. The husband holds legal title to it, and he is the one with the federal tax debt. The wife has a possessory homestead interest under S.D. law, which, in IRS’s view, doesn’t amount to a vested interest. IRS claims it needn’t pay her any proceeds from the forced sale. A federal court disagreed, saying that the S.D. homestead law essentially gives the wife an independent interest in the property. Upon foreclosure of the home, she must be justly compensated for her loss (Nelson, D.C., S.D.).