Discussion:Poor Guy Was Duped - Now What?

Mostly her self employment tax from sole proprietor day care. The IRS hasnt contacted him about her payroll taxes - with are substantial.

Who prepared these joint returns? A paid preparer? The taxpayer?

and had absolutly nothing to do with the business. However, I only called once. I am aware that I could get a different answer from a different agent if I called again.

If he had nothing to do with the business, and no check signing authority, I believe the payroll taxes are not an issue for him. With all the weaknesses of the sole proprietorship, there is still a limit to liability when one spouse had nothing to do with it. It should not even be part of any negotiation with IRS, but as IRSfixer notes, he needs someone familiar with this type of representation to assist him. In your shoes, I would refer the man out if you do not feel confident. Too much at stake here, and he has been badly advised once.

Basically, what I would be looking to do is toss out the amended returns and go back to what was originally filed.

I agree that based upon what has been presented he will have no responsibility for her payroll liability. However, please don't take ANY advice EVER from an IRS employee on the telephone about anything.

We have encountered similar scenarios, but nothing quite this blatant. If the CPA was involved in concocting this scheme, there is no doubt a referral would be made to OPR and to the appropriate State Board of Accountancy.

CPA is the same CPA that did accounting for wife's business along with payroll tax returns.

There are dependents involved in which husband was eligible to claim. Wife would benefit because of better tax bracket, child tax credit and childcare credit. I know he wasnt very smart, but women have been guilty of the same thing for years.

So my friends, Is tax assessed on an amended return an understatement that would qualify for Form 8857 or is equitable relief the only possibility?

I did a return for a guy who gave up his citizenship as part of a complex tax planning deal with his reconciled wife which ended up not going his way. He was stuck with no money, no wife, no access to his children, and no US citizenship. The lawyer and I handling the case for his wife told him umpteen times both verbally and in writing that there was a conflict of interest and he should take separate advice beforehand, but he never did. Crumbs.

The OP's client might also have to show that he did not know and reasonably couldn't have known that the spouse didn't pay the tax.

I am joking, but you get the idea, I hope.

IRCC, tbe "known/should have known" issue would only come into play if the spouse missapropriated funds that would have gone to pay for the othe other spouses tax.

$1500 for the innocent spouse is not excessive nor would $3000 be excessive for an OIC

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I have decided that if I ever had a case where a couple wants to amend from M/S to M/J - I want something in writing that they both have to sign. I have prepared amended returns like this before and made sure that both understood the consequences - It just never occured to me to have them sign a statement. I might even have them prick their finger and stamp statement with blood. What do you think?

Let's put it this way: don't you think Block or Hewitt would have a big lawsuit on their hands if they had done this?