Discussion:Would this be considered fraud?
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DR BRISKET (talk|edits) said: | 8 May 2006 |
| My client filed for divorce in 2004. She and her ex-husband owes back federal income taxes for several years in which joint returns were filed. Even though joint returns were filed, the taxes were actually a result of her ex husband's self employment business. In the divorce decree, the ex-husband has agreed to pay all of the back taxes. My client, who is now single, is receiving a federal refund for tax year 2005. Her ex-husband is supposedly in the process of working out an offer of compromise with the IRS on the back taxes. My client wants to hold off filing her 2005 return until her ex-husband settles the old account with the IRS, otherwise, the refund of approx. $250 would be used as a setoff against the back joint taxes. Can she do this, or would this be considered fraudulent since she is jointly liable? Presently, an automatic six month extension has been filed, so she technically has until October 15, 2006 to file her return. But, if her ex hasn't settled up with the IRS by then, could she continue to hold onto her 2005 tax return? She actually can file it as late at 4/15/2009 without losing her refund. But, how about the back taxes that she is jointly liable for? Any input here would be greatly appreciated. | |
Inagpurwala (talk|edits) said: | 8 May 2006 |
| Use for 8379 Injured Spouse to get relief (not to apply taxes owed by other spouse to your client's refund).Inagpurwala 20:30, 7 May 2006 (CDT) | |
| 8 May 2006 | |
| Tax fraud requires an intent to purposely deceive the government to prevent the treasury from
receiving tax that it is due. She has a good faith belief that she may not owe the tax and would not owe the tax should ex husband's OIC be approved. In this situation, she looks more exposed to a charge of willful failure to file. This is also a criminal charge, but practically, the IRS does not spend much time pursuing criminal charges for people over 250$ in taxes. Even with this, I don't advocate or recommend tax law violations due to IRS enforcement policies. Just giving you the data. Study the Taxalmanac article: "Innocent Spouse Relief (And Separation of Liability and Equitable Relief)". Ir gives an excellent overview.
Sticky subject, hoping others can weigh in. | |
DR BRISKET (talk|edits) said: | 8 May 2006 |
| I don't think Innocent Spouse rules would apply for tax year 2005 as the client is filing a single return. Besides, with her being jointly responsible to pay the old back tax, how could she be an "innocent spouse"? Even though her ex has agreed to pay the back taxes, I would think the IRS would say she is still jointly responsible to pay them, and would confiscate any refund due her. | |
| 8 May 2006 | |
| Unless you could qualify under the new "equitable relief" provision, you are surely correct under the standards. | |
| 8 May 2006 | |
| No Injured spouse. Forget it.She cannot file "Injured" - She is filing single.
DR Brisket, I don't know if in this case the difference between Injured spouse and Innocent relief . I would need to check the rules for "innocent". I know that there are some requirements. Spouse did not profited from that, and more I don't remmeber now Finally: I don't think she can be in trouble just waiting for the whole situation to be fixed before file. For instance, my client is expecting a big refund- similar situation- Husband owes a lot since 1989.. She is waiting.. And I'm sure that IRS made some kind of mistake with her own taxes. This one, need to be fixed first. | |
| 8 May 2006 | |
| Once again, there are some serious errors here. Once someone is divorced, they can only compromise their own taxes, not that of their ex-spouse. So, if the husband's OIC is accepted, the ex-wife will still owe their tax liability. So, the entire question is moot.
Next, the 8379 is not the correct use of the form as the ex-wife is fully liable for this debt and the refund is coming from her own return. The fact that the liability have resulted from her former husband's income is irrelevant. Additionally, there is no tax fraud under any circumstance. Period. She can hold off on the filing of her return, but it wouldn't do any good any way. Also, as is commonplace, we see a nonsensical divorce decree crafted by attorneys who have no understanding of Federal tax law. These statement are of NO legal bearing whatsoever and are of no consequence to the IRS. The taxes are owned jointly and severally. Between themselves, the parties can work out whatever deal they wish. As far as the IRS goes, they are worthless. It's a shame so many attorneys continue to write this garbage into divorce decrees. I've seen it for the full 18 years I've been in this business. No matter how many times you explain it to the family law attorneys, they still continue to do it giving false hope to women (99.9% of the time it is written in favor of the ex-wife) that the IRS can only pursue their ex-husbands when nothing could be further from the truth. Here's the bottom line. Based upon the information stated by Dr. Brisket, the client should file her return because she isn't getting the refund no matter how you cut it. | |
| 9 May 2006 | |
| There are some collaterial issues. The divorce court cannot release ex spouse of joint liablities. But it can require the "responsible" (per the family law court) spouse to reimburse the other.
I do sympathise with regard to the frustration of dealing with the family law courts and attorneys with regards income taxes. They seem to revel in their ignorance of tax implications of what they do. | |
| 10 May 2006 | |
| Agreed. As I stated, between themselves, the parties can work out whatever deal they wish. Unfortunately, that isn't the normal intent of those clauses. | |
| 11 May 2006 | |
| If, in fact, the tax liability is a result of the husband's self-employment...the ex wife should file either injured or innocent spouse for the tax years that apply to the liability. She should file 2005 with a statement explaining her position on the prior years liabilities and include copies of the injured/innocent forms that she filed.
I am not saying the IRS will agree with her but at least it gives them an opportunity to assess the situation and determine whether she is in fact responsible for the liabilities just because the signed the returns. My feeling is...the worst they can say is no, but they may accept the position of the ex wife. | |
| 11 May 2006 | |
| Taxea, Read again, please, Form 8379- Injured SPOUSE. The form does not work for a Single person.
How she can file married filing jointly ,, adding the injured situation ...being single. Plase. You must consider other people opinions. Skasselea, for instance, that has A LOT of valuable knowdledge. I learned about injured spouse that at HRB course : "Everyone's return" | |
| 11 May 2006 | |
| Form 8379 states: "You may be an I S if you file a joint tax return..
The , it also states: "Form 8857- That form can be a posibility: "You are divorced, separated, or no longer living with your spouse" | |
| 11 May 2006 | |
| Taxea, the problem is that the wife MAY have to establish that she did not benefit from the income the husband earned. We have had success in fighting this on the basis of "separation of liability". We have also found that it's much easier to make that claim when the wife had wages AND she had proper withholding on those wages.
On one case, we lost because while the husband clearly didn't pay estimated taxes, the wife clearly had the benefit of the husband's income AND she didn't have proper taxes withheld from her own wages. These are cases where one has to look closely at the facts and circumstances and not just the rules. The rules establish boundaries, but they don't make decisions. | |
| 13 May 2006 | |
| In this situation you have to separate reality from theory. I am going to concentrate on a reality answer and not theory. I worked for the IRS for thirty years and there is absolutely no way the IRS would pursue fraud in this situation. The $250 does not meet the deficiency criteria. The IRS will not spend money prosecuting a fraud case for only $250. She also has not signed a tax return under penalties of perjury. The IRS could file preceedings as a failure to file case, but this is virtually impossible because there is no tax owed. The option the IRS has is to get her to file by sending her notices or possible telephone calls. This is usually very effective. If she does not file and starts to receive failure to file notices from the IRS, I think she will have to file the return.
If she does file, the IRS will probably confiscate the refund. She could file and hope that the IRS's computer messes up and does not link her return to the back taxes owed. If IRS does confiscate the refund she could pursue innocent spouse for the back years and hope IRS gives in because it is only $250. If IRS is adamant that she owes the money, her only option is to pursue the matter herself because it would cost more than $250 to hire someone to represent her. And this could be a long winding road to travel down. As Skasselea has stated, in this situation the divorce agreement is meaningless to the IRS. You should also make sure she doesn't receive refunds for subsequent returns. | |
| 16 May 2006 | |
| I get a bit uneasy about telling someone they need not file, or that it makes no difference if they file. I am not referring to the civil penalty for failure to file (sec 6651) which is calculated on the underpaid tax. I am referring to the criminal provisions at Sec 7203 which are not based on the amount of the underpayment.
Lets say that wife got income of 20,000$ that she failed to mention to you. She had a job on the side she did not mention. You thought her situation was insignificant because she only told you of her ( minimal) wages with 250$ withheld. Now you have told her she need not file since she would be getting a refund anyway. Also you have the OPC (IRS office of professional responsibility) out there trying to make a name for themselves now. One might find themselves unluckily at the wrong place at the wrong time. Did you hear the follow-up to the survey of Chain preparers presented by the GAO? That was the report of widespread errors on the 19 dummy clients sent clandestinely into the chain storefronts: After the headlines from the congressional testimony, the GAO is forwarding those cases and data to the IRS CI department for follow-up as needed. (taxanalysis report from about 3 weeks ago).
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| 17 May 2006 | |
| In my view, GlennGar have the answer.
It looks ridiculous that anyone will face criminal charge in this situation. Also, she is just waiting for a few month to file. WillyB: Following with your example. If the taxpayer file her income tax,, and did not mention to you the 20K or the 200K, she can do the same: "I told him' A lot of taxpayers are always looking for the crooked one that would give it to them a "better" botton line. ... And when the problems arise: "It was my preparer who did it in that way" | |
