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Discussion Forum Index --> Basic Tax Questions --> MFS in Community Prop State
Discussion Forum Index --> Tax Questions --> MFS in Community Prop State
Karendhill (talk|edits) said:
| 1 December 2009
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| Client is legally separated from husband in 2009. In 2008, they lived in the same house in a community prop state, even though the marriage was on the rocks. Husband did not work in 2008 and took huge IRA distributions (from HIS IRA's acquired during marriage) to support his drug habit. Wife worked and had federal and state withholding from her payroll in 2008. Wife does not want to pay tax on his IRA distributions, since she didn't benefit from them in any way. How can this be done if she is living in a community prop state? If she files MFS, she'll have to split the community income, itemized deductions and payroll withholdings 50/50 with the junkie (he paid in nothing for tax withholdings), correct? How strict is the IRS with the splitting of income (and withholdings) in community property states?
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DaveFogel (talk|edits) said:
| 1 December 2009
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| According to Publication 555 (May 2007), page 4, distributions from an IRA are considered separate property in a community property state, even if the funds in the account are community property. Such distributions are wholly taxable to the spouse whose name is on the account. That spouse is also liable for any penalties and additional taxes on the distributions. See Bunney v. Commissioner, 114 T.C. 259 (2000); Morris v. Commissioner, T.C. Memo. 2002-17.
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R2 (talk|edits) said:
| 1 December 2009
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| A legally separated indivdual should not file MFS since he is treated for tax purposes as an unmarried individual. Remember that a legal separation is the result of a judicial order ending the marriage.
IRA distributions are taxed to the distributee without regard to community property rules. See Sec. 408(g).
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Karendhill (talk|edits) said:
| 1 December 2009
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| Dave: That's great to know! What about the payroll withholdings though? Does he get credit for 50% of that?
R2: They did not get the legal separation until 2009.
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R2 (talk|edits) said:
| 1 December 2009
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| The withholding should be split according to state law. What state is involved here?
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R2 (talk|edits) said:
| 1 December 2009
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| I am going to guess and say that the clients reside in Arizona. I believe that the withholding would be community property up until the date that the petition for divorce or legal separation is served on the other party.
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Karendhill (talk|edits) said:
| 1 December 2009
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| Arizona. Even though she'll have to split the withholdings with him, he will have to pay tax on 50% of her W-2 wages and 100% of his IRA distributions. Hee, hee, hee.
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