Offer in Compromise & Installment Agreements When Married
Introduction
Many taxpayers owe the IRS from a prior marriage but later remarry and want to resolve the tax debt without involving their new spouse’s income or assets. This situation is common, and the IRS actually has specific rules to protect a non-liable spouse.
Although the IRS requires you to disclose household income on Form 433-A for an Offer in Compromise or installment agreement, the IRS does not treat your spouse’s income or assets as available to pay your tax. The Internal Revenue Manual (IRM) provides clear support for allocating shared household expenses and evaluating ability to pay based solely on the taxpayer’s income and property.
This article explains exactly how those rules work — and how to structure a 433-A or 433-A(OIC) correctly.
1. The IRS Requires Household Income Disclosure — But Doesn't Count Spouse Income
Form 433-A and 433-A (OIC) require taxpayers to disclose full household income, including the spouse’s. Many people mistakenly believe that this means the IRS will use the spouse’s income to determine ability to pay.
It does not.
The IRS uses a specific allocation formula to determine what portion of household expenses belongs to the taxpayer. This protects the non-liable spouse from being pulled into the taxpayer’s collection matter.
2. IRS Rule: Allocation of Shared Household Expenses (IRM 5.8.5.3(4))
The controlling rule appears in IRM 5.8.5.3(4):
“When the taxpayer shares household income and expenses with a non-liable individual, it may be appropriate to prorate the total household income and expenses to determine the taxpayer’s proportionate share.”
The IRM instructs the examiner to allocate expenses by:
Taxpayer Income ÷ Total Household Income = Ratio
This ratio is then applied to household expenses. The result:
Only the taxpayer’s income is used for ability-to-pay
Only the taxpayer’s share of expenses is allowed
The spouse’s income is not treated as available to pay IRS debt
This allocation method applies to both Offers in Compromise and installment agreements.
3. Spouse Income Is NOT Counted as Ability to Pay (IRM 5.15.1.7)
IRM 5.15.1.7 makes this explicit:
“The income of a non-liable spouse is included solely to determine total household income; it does not represent income available to pay the taxpayer’s liability.”
This is the strongest IRS authority supporting the position that:
Spouse income must be disclosed
Spouse income cannot be counted toward tax liability
Ability-to-pay must be based on taxpayer’s income only
This rule applies across the entire IRS Collection function, including OICs and installment plans.
4. The IRS Cannot Include Spouse Assets (IRM 5.8.5.6)
IRM 5.8.5.6 states:
“Only the taxpayer’s ownership interest in an asset is included when determining reasonable collection potential.”
Therefore:
Spouse’s bank accounts
Spouse’s retirement accounts
Spouse’s vehicle
Spouse’s separate property
—all must be excluded from the Offer in Compromise asset calculation unless jointly owned.
This substantially reduces the taxpayer’s reasonable collection potential (RCP), making Offers far more viable.
5. Installment Agreements Use the Same Rules (IRM 5.14.1.4)
For installment agreements, IRM 5.14.1.4 provides:
“Financial analysis for installment agreement consideration follows the guidelines under IRM 5.15.”
Because IRM 5.15 includes the non-liable spouse rule, the same protections apply:
Spouse income is not used for ability-to-pay
Only taxpayer’s income minus allocated expenses counts
This prevents inflated monthly payment demands.
6. Why the IRS OIC Pre-Qualifier Tool Gives Wrong Answers
The IRS’s online OIC Pre-Qualifier does not apply IRM 5.8.5.3(4) or IRM 5.15.1.7. It incorrectly assumes all household income is available to pay the debt.
For remarried taxpayers, the Pre-Qualifier routinely produces misleading results. Only a properly completed Form 433-A (OIC) with an attached allocation worksheet reflects the real IRS rules.
7. What You Must Submit with the 433-A
To ensure the examiner applies the correct rules, you should:
Include spouse income on the form (required)
Attach a Household Income Allocation Worksheet (proration method)
Attach a narrative citing:
IRM 5.8.5.3(4) — Shared expense allocation
IRM 5.15.1.7 — Spouse income not available to pay
IRM 5.8.5.6 — Only taxpayer’s ownership interest included
This eliminates confusion and accelerates processing.
8. Community Property States
If you live in a community property state (AZ, CA, ID, LA, NV, NM, TX, WA, WI), additional rules may apply regarding the IRS's ability to reach shared assets.
Conclusion
If you owe IRS debt from a prior marriage and have since remarried, your spouse’s income and property do not have to be included in an Offer in Compromise or installment agreement analysis. IRS rules clearly support:
Disclosure of spouse income
Allocation of shared household expenses
Ability-to-pay based only on taxpayer’s income
Exclusion of spouse assets
With proper documentation, taxpayers can successfully negotiate an Offer or payment plan — without involving their spouse's finances.
IRS Authorities Cited
IRM 5.8.5.3(4) — Shared Household Income & Expense Allocation
IRM 5.15.1.7 — Non-Liable Spouse Income Not Available for Tax Payment
IRM 5.8.5.6 — Asset Analysis (Taxpayer Ownership Required)
IRM 5.14.1.4 — Installment Agreement Financial Analysis
By Gene Bowman, Attorney–CPA, Huntsville, Alabama
