Back Taxes Owed Question - Insolvency

[drivel2787]

Hello,

Question so I was divorced and my ex and I 2016 tax return was reviewed by the IRS and said that due to two credit cards settled for less the two companies sent a 1099-C I didn't claim on 2016 return.  I never got these from the creditors which is why I didn't include them on my 1040.  In addition, they are wanting back the educational credit received for this tax year as well.  Resulting in owing back like $5,200 now with interest and penalties.  I spoke with the IRS after a YEAR I finally got a decent agent.  They said I could send in a document typed in word listing the educational expenses and that I could file a form 982 and insulvancy worksheet where if my debt/liabilities were greater then my assets at this time I would/could be considered insolvent and this could wipe the amount due to the IRS.   So needless to say I faxed in the information right away to the IRS and the collection department put a 60-90 day hold on levy and collection efforts.  They said it would take 6-8 weeks to re-open my case and then they would process the information and make adjustments and alert me the results/outcome of this.

My question is while this is being done with tax season just around the corner will the IRS hold the tax return while this is being reviewed/investigated?  I do know they said if owed they would would take the full amount from whoever files first.  Which I understand and already took my ex wife to court over this and was awarded a judgment for half she is responsible for.  That being said the IRS doesn't consider this and won't split the balance due until half and half for each person to pay.  Essentially they mirror the accounts with the full balance due and each person can setup a payment plan.  So I was just curious how this will impact filing taxes this year, if she files first will they hold her return, until the outcome is decided, or if I file first will they hold mine?  Or will they process and refund the amount due back to either person until this is reviewed and then come after both parties for the balance?

I believe I am insolvent so it hopefully will be a non-issue and wipe the balance due.  But wanted to know how this will impact filing 2020 taxes in January - April.

Thanks in advance for any information you can provide.

[Critter-3]

If I were you,  if you have a refund,  I would NOT file the 2020 return until this situation has been resolved  ... go on extension if need be.    

[drivel2787]

Yeah my plan was a little evil which was to let my ex wife file first.  I'll get a refund and don't want to end up with it held for 8 months lol.  So, I guess I'll see how this turns out and file an extension if needed.  I know they said whoever files first according to the IRS agent I spoke to said they'd hold that return and take whatever amount out.  I just didn't know if they were reviewing these forms and there could be elimination of the back due taxes if they would still hold the return or not until it was processed and since there's no time frame on once submitted how long that takes I wanted to ask if anyone was aware how that would work.  I'll probably ask the IRS that question when I call Wednesday or Thursday next week to verify they got my fax of the 982 and insolvency worksheet.  I do know my debt/liabilities exceeded my assets so I should definitely be insolvent and it should hopefully wipe the amount due back.  We shall see the outcome.

[drivel2787]

So for those that ever run into this, even if you file this, they will still collect the money from the return of you and/or the person who files first (if divorced).  If they re-process your information and find that you no longer owe the balance because you're considered "insolvent" then they'll refund the money back to you.  Just figured I'd give a heads up for anyone in the future in this situation that has questions and wonders how it works.