Wife will not amend return

[Patrick Michael]

This is a new one for me and wondering if anyone has had to deal with this.  Potential client and his wife are getting divorced and wife self prepared and filed a joint return for 2013.  During the discovery process for the divorce the husband learned the wife (Sch C) had under reported her income.  She refuses to sign an amended return to report the income.  The husband wants to amend to file MFS, but I do not believe this is possible as the filing deadline has passed.  They have not been living together for over a year and the husband has not had involvement in the wife's business and had no reason to believe she had understated her income.  How should the husband go about reporting this to the IRS since the wife refuses to sign an amended return?  Would this situation qualify for Innocent Spouse Relief?  Should he file form 8857 now or wait for the IRS to assess additional tax?

 

Thanks.

[ILLMAS]

Report someone to the IRS for fun and money

 

Who are the IRS’s favorite superheroes?  The X-Men.  The IRS loves to hear from ex-spouses, ex-business partners and ex-employees about taxpayers who may not have fully met their federal tax obligations.  The IRS even has official “Whistleblower” programs that reward people for dropping a dime on their follow taxpayers.

The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to thirty percent of the additional tax, penalty and other amounts it collects.  The IRS only pays awards to people who provide specific and credible information to the IRS and the information results in the collection of taxes, penalties and interest from the target taxpayer.

 

Internal Revenue Code IRC Section 7623(b ) provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed two million dollars, and a few other qualifications are met, the IRS will pay fifteen percent to thirty percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than two hundred thousand dollars.  The IRS has another award program for whistleblowers who do not meet these income thresholds. The awards through this program are less, with a maximum award of fifteen percent up to ten million dollars.

If you decide to submit information and seek an award for doing so, use IRS Form 211. The same form is used for both award programs.

 

However, anyone thinking about submitting information under the Whistleblower programs will want to consult with a qualified tax attorney for two main reasons.  The first reason is that a qualified tax attorney can make sure that the Whileblower will not be subject to blow back from their whisleblowing activities.  Many “exes” may be jointly liable for the very taxes that they are providing the IRS information about.  Most clear thinking people would not want to engage in the tax equivalent of a murder suicide pact.  A qualified tax attorney would also help in guiding the whistleblower through the procedural steps of the whistleblower program.

 

Also, do not think that the Whistleblower programs are a way to get rich quickly.  In a 2010 GAO report to Congress on the program, the IRS said whistleblowers are told that completing a claim could take five to seven years and sometimes longer.   Of course most whistleblowers are motivated by “doing the right thing” and not by revenge on someone who wronged them.

 

On the other hand, the Whistleblower programs are a reminder that you should not play fast and loose with federal tax rules, especially if there are others around who can drop a dime on you later.  Information is the most valuable commodity; don’t give it away to someone who can use it against you later.

 

http://www.rhlaw.com/blog/irs-whistleblower/

[Max W]

Since her income has been entered into the court records and there is a record of the income claimed on the return, his attorney might be able to go back to court and have the judge compel her to sign an amended return.

 

Otherwise, let sleeping dogs lie.

 

Neither innocent spouse nor whistle-blower are a slam dunk.  Your client may not be telling you everything, all the facts and circumstances.

He happily signed the joint return, so no innocent spouse there. If the return gets audited and additional tax is assessed, then that would be the time to file innocent spouse.

With whistle-blower it usually has to be a fairly substantial amount before they will even look at it. Essentially what he would be doing is reporting on his own tax return.  That could take unforeseen turns. The IRS does lengthy investigations, and you never know, they may turn up something on your client.

 

What he might try is to file the amended MFJ return, but only sign his name.  The IRS will send back a letter requesting her signature.  An official letter might put enough pressure on her to sign.

 

He can also amend to MFS- IF he can get the marriage annulled.  Then all the returns filed jointly would have to amended.

[kcjenkins]

BEST ADVICE:

 

Since her income has been entered into the court records and there is a record of the income claimed on the return, his attorney might be able to go back to court and have the judge compel her to sign an amended return.

 

Otherwise, let sleeping dogs lie.

[michaelmars]

_{the reason the  awards take so long is because they have to wait till all statuatory time frames for appeals are over.} 

[taxxcpa]

Did he really "learn" that she underreported her income, or just suspect It?

[Patrick Michael]

Did he really "learn" that she underreported her income, or just suspect It?

He said they have proof she under reported her income and she admitted that she did so to get more spousal and child support.  His attorney's advice was to amend to MFS so he (or she) does not know much about taxes.  The husband wants to avoid an audit because he is afraid that she may have under reported by more then they have found and that this may have been going on for years so I don't think he would want to go the whistle blower route.  He said he wants to do the right thing and I'm sure sticking it her is also a motivator, as long as he doesn't get stuck with the extra tax, penalty and interest.