Advice on MFS filing

[MariaR08]

Hi again!

I have a client (wife) who came to me and wants to file MFS. Her and her husband are not separated or divorced and are in full communication (California). Here's the deal, husband did not have taxes withheld for 2008 and so will end up owing (I know!). The wife worked and had her fair share of taxes withheld; from looking at her W-2 she is due a refund of at least $2,000.

So... I just downloaded Publication 504 for Divorced or Separated Individuals - but obviously my client is not divorced or separated. She just doesn't want to be responsible for her husband's "error". The husband hasn't even received all this documents yet to even file and see how much in the hole he is.

What are your suggestions? Anything specific I should be looking/reading on?

Thanks in advance friends!

~Maria

[AZ-Tax]

I just did a MFS and the spouse for some reason

did not want to file MFJ in which they would have saved taxes vs. MFS. I could not change the spouses mind so I had the spouse sign a letter requesting "I file MFS even though MFJ may have reduced their income tax liability".

There are some things money can't buy.

Another CMA or CYA

[Jiggers]

California is community property state

I don't know about California, but here in Texas, when spouses want to file MFS, they have to split all income and all withholding. 1/2 of his W-2 and any withholding goes to her, and 1/2 of her W-2 and any withholding goes to him.



See Publication 555.

[S T]

Calif MFS

If they resided together, each takes one half of each others income, withholdings, etc.

If they didn't reside together for the entire year, you calculate the period that they lived together and split income, and the period they didn't live together each takes their own income.

CFs has an income splitting worksheet that makes it easy to calculate.

Here is a link to Calif MFS that might assist you http://www.ftb.ca.gov/forms/04_forms/04_1051A.pdf

Sandy

[Koss]

Community Property Laws

Geez, I'm glad I don't live in a community property state...

That's one heck of a mess.

Your client may qualify for innocent spouse relief. You can start by reading the instructions for Form 8857.

In my world, innocent spouse relief is generally available only to someone who filed a joint return, and is now divorced or widowed from that spouse, and can reasonably claim that they did not know about, and did not benefit from, the underpayment of tax.

But in California, things are different.

There are special rules for community property states. Your client may qualify for innocent spouse relief if she chooses to file separately. As a bonus, she may not even need to get divorced!



I'm not kidding. Read the instructions for Form 8857.


Q: How do you file a separate return in a community property state?

A: Very, very carefully.


BMK

[travis bickle]

doesn't

form 8379, injured spouse, "solve" this problem?

[Koss]

Innocent vs. Injured

No... injured spouse is a whole different ball game.

Injured spouse is meant to address a very narrow, very specific scenario:

Tom and Mary file a joint return for 2008.
Tom and Mary both have income on the return.
Tom and Mary both have payments or credits on the return.
The return shows a refund.
The refund is seized by FMS to satisfy a debt owed by Tom.
Mary is not liable for the payment of that debt.

The injured spouse form allows the IRS to allocate the refund between the two spouses. Mary gets her portion of the refund. Tom's portion of the refund still goes toward payment of his debt.

The most common example of this scenario is where Tom owes delinquent child support for a child from previous marriage.

Tom's debt could also be delinquent tax owed to the IRS from an earlier year in which he filed separately, or jointly with his former spouse. Tom's debt could also be something such as a delinquent student loan.

But the common thread is that it is undisputed that Mary is not liable for that debt. Therefore, her portion of the current year refund on a joint return should not be seized to offset that debt.

Maria's client has a totally different fact pattern. There is no refund for the current year. There's a massive balance due, because one spouse is underwithheld. Because it's a community property state, the other spouse is considered liable for that tax whether they file jointly or separately--unless she can meet all the criteria for innocent spouse relief.

And the rules for innocent spouse are quite different under the community property laws than under the "regular" system.

BMK

[DaveO]

I filed a couple MFS a few years back because the Husband has cashed out a large IRA to start a business which failed and then was 3 years behind on taxes. We filed the year of the IRA withdrawal MFS and the other 2 years MFJ to protect her income from levy as they had no hope of paying the taxes.

She said the IRS and State revenue officers were cursing me for doing that since they couldn't levy her wages to collect. She has thanked me every year since.

[MariaR08]

Thanks Koss!!

Thanks for the GREAT info!!!!!!!!!!

I got some reading to do... =)

~Maria