Injured and/or Innocent Spouse Question, please.

[Donald Hughes]

Thumb nail sketch:

TP & SP (wife) Filed MFJ for 2020 and 2021. Divorced in 2022 and filed Single for 2022 and 2023. Large Balance due for 2020 and 2021. the ex-SP (wife) had her refund applied to the tax debt for 2022 and 2023. Wife was self-employed as a massage therapist, with some unscrupulous Sch. C deductions. Husband, a Dr., handled all the finance and tax stuff therefore wife had a loss for 2020 and 2021. Is Injured SP an option since there is a balance due, especially with it not because of her income, as she showed a loss.

Would Innocent Spouse make sense for the 2022 and 2023 filing year so she may recoup he refund applied to his balance due/installment plan? 

Amendments have been filed for TY 2020 and TY 2021 in 2024 to correct a Corona Virus filing created in error.

 

[kathyc2]

It would not be injured spouse as the liability was joint when it occurred.  

Doubtful innocent would apply either:  https://www.irs.gov/individuals/innocent-spouse-relief#:~:text=Innocent spouse relief can relieve,from employment or self-employment.

Does the divorce settlement address how the tax debt is to paid?

 

[BulldogTom]

Timely Question.   I just got a CP2000 for a client yesterday for 2022 MFJ.   Clients are divorcing.   TP apparently took 90K from his retirement plan that SP did not know about.   They are still married, but separated since late 2022 when this transaction possibly took place.  TP tells SP that he did not take the distributions.   1099Rs tell a different story.   I need to amend but they are only talking through lawyers.   I am waiting for direction as I cannot amend when only the SP is my client moving forward.  I have the same question, can my spouse take Innocent Spouse position on a MFJ return where TP made the transaction and kept the funds for himself?

I hope they resolve this with the attorneys.   SP is taking the info to her lawyer today.

Tom
Longview, TX

[Donald Hughes]

1 hour ago, kathyc2 said:

It would not be injured spouse as the liability was joint when it occurred.  

Doubtful innocent would apply either:  https://www.irs.gov/individuals/innocent-spouse-relief#:~:text=Innocent spouse relief can relieve,from employment or self-employment.

Does the divorce settlement address how the tax debt is to paid?

 

Ex-SP (wife) has stated that the divorce document shows he is totally responsible for any tax debt, however she has not produced that document yet. Thank you

 

[kathyc2]

16 minutes ago, Donald Hughes said:

Ex-SP (wife) has stated that the divorce document shows he is totally responsible for any tax debt, however she has not produced that document yet. Thank you

 

In that case, I'd say it's up to her or her lawyer to receive reimbursement from him.  I'm not seeing how this has anything to do with IRS.  In the future she may want to adjust withholding/payments so there is not a refund. 

[kathyc2]

1 hour ago, BulldogTom said:

I need to amend but they are only talking through lawyers.   

Why would there need to be an amendment?  If IRS corrected for the 1099R they need to pay the tax but there is no need for a federal amendment.  

[BulldogTom]

4 minutes ago, kathyc2 said:

Why would there need to be an amendment?  If IRS corrected for the 1099R they need to pay the tax but there is no need for a federal amendment.  

The State of CA will want their taxes as well.   We could wait for the notice from CA, but then the penalties and interest will continue to build.  IMHO it is better to amend the CA return and stop the bleeding.

Tom
Longview, TX

[BulldogTom]

59 minutes ago, kathyc2 said:

In that case, I'd say it's up to her or her lawyer to receive reimbursement from him.  I'm not seeing how this has anything to do with IRS.  In the future she may want to adjust withholding/payments so there is not a refund. 

The IRS does not care what the divorce decree says, they have Joint & Several Liability for the tax due and a divorce document does not change that from the IRS point of view.   Kathyc2 is correct, the spouse needs to go to her lawyer and get the decree terms enforce, it is not an IRS issue.

Tom
Longview, TX

[kathyc2]

57 minutes ago, BulldogTom said:

The State of CA will want their taxes as well.

Yep.  I was assuming it was TX.

[Terry D EA]

On 11/5/2024 at 12:38 PM, BulldogTom said:

Timely Question.   I just got a CP2000 for a client yesterday for 2022 MFJ.   Clients are divorcing.   TP apparently took 90K from his retirement plan that SP did not know about.   They are still married, but separated since late 2022 when this transaction possibly took place.  TP tells SP that he did not take the distributions.   1099Rs tell a different story.   I need to amend but they are only talking through lawyers.   I am waiting for direction as I cannot amend when only the SP is my client moving forward.  I have the same question, can my spouse take Innocent Spouse position on a MFJ return where TP made the transaction and kept the funds for himself?

I hope they resolve this with the attorneys.   SP is taking the info to her lawyer today.

Tom
Longview, TX

Tom,

I had this very situation with my oldest daughter. Both lived in CA at the time. Ex received a bonus that he deliberating left off of the joint return. He also, filed the return electronically without her knowledge or signature. Needless to say, we had a fight on our hands and CA didn't make it any easier. This happened over 10 years ago so my memory is a bit foggy. We started with innocent spousal relief and didn't get anywhere and if my memory serves me correctly, the last attempt was equitable relief. Anyway, two years later the IRS nailed the ex-husband with the entire bill, plus penalties, plus interest and was fortunate they didn't go after him for fraud. This was also after the divorce decree stated it was a community expense. Only difference is the ex-husband was not my client.  As was said, the IRS doesn't care what the courts say in the divorce proceedings. This has been quite a few years ago ten or more and I am pretty sure CA followed suit.

[BulldogTom]

 

My situation is now resolved.   Client was in the process of dividing the marital assets when the CP2000 arrived.  He fessed up to taking the distribution and agreed that the tax liability was his and agreed to take less money in the marital asset split in exchange for my client paying the tax bills.   It works out a whole lot better this way in my opinion.   The returns are now corrected, the IRS and CA are paid and my client does not have to worry if he actually paid the tax bill.  We don't have to involve the government in their divorce.

Tom
Longview, TX