cp notice to now divorced couple

[nalawson]

My client filed joint in 2007. In 2008, couple divorced. I became preparer for wife for 2008 return. IRS sends notice to both of adjustment of income and additional tax due for 2007 return. I check the 2007 return against proposed adjustment, and find the IRS is correct. My clients ex will not sign notice. I call the IRS and they say to have the wife sign and send in anyway. The couple split the original refund as per divorce decree. The ex-husband says he will not pay any of the tax due. My question: Is is in the best interest of my client to pay any amount due now? It is my assmption that the IRS will collect its money from whomever files first next year with a refund coming if no tax is paid before? Any thoughts or guidance?

[Uncle Sam]

Now Divorced Couple

Whose income caused the tax to increase?

[Jesse]

>>Is is in the best interest of my client to pay any amount due now? <<

The sooner paid the less interest and penalties to pay.

>>It is my assmption that the IRS will collect its money from whomever files first next year with a refund coming if no tax is paid before? <<

Unless she can qualify for innocent spouse relief, then the IRS is going to intercept future refunds from either/both until it is paid.

[nalawson]

both, but most from non included unemployment comp. Client did not have 1099-G, but paperwork from gov showing amount paid to client. My client went through appeal process because she was overpaid unemployment comp. She paid back the overpayment. You had to look thru the papers carefully to see actual amount to include on return. She said they gave the papers to the previous preparer.They were told not to worry about the unemployment comp from past preparer. (?) Preparer also left out advanced EIC that was noted on w-2 of hers. Royalties and interest income from ex hus also left out. Preparer may not have recieved that info.

[erchess]

Who received the unemployment comp?

[nalawson]

the wife, my client. I don't understand why that matters. If the return had been done correctly in the first place, they would have split the refund or tax due..so it seems to me they should split this.

[erchess]

The Reason

The reason why it matters who had what that was left off is that even an innocent spouse has to pay whatever is due to their unreported income or their overstated deductions.

If your client didn't know about nor benefit from her ex husband's income in question then it would be reasonable for her to file for Innocent Spouse Protection if his income in question is large enough to make it worthwhile to pay you for the time involved.

If your client cannot reasonably file for Innocent Spouse Relief then her best option is to pay all that is due and then consider with a lawyer how much she can compel her ex to reimburse her. There is a reason why the IRS has things set up so that a married couple almost always pays less tax MFJ than MFS. If the couple files MFJ then most of the time the IRS can collect all of any deficiency from whichever person they can locate in possession of enough money. There was an article several months ago in some periodical I receive arguing that if one member of the couple has significantly more income or deductions than the other, the tax professional should urge the other spouse to refuse joint filing because of the risk of later liability.

[nalawson]

Thank you...that makes sense. A response is due tomorrow and I did urge her to pay what she could knowing there would be interest, possible penalties until balance due is paid. I just wanted to be sure I was giving the best advice and that I had not left some better reasoning out.

[Lion]

Refer

Refer her back to her divorce attorney to interpret their decree. They may have indemnified each other for separate debts that later come to light. Then she needs to work with her lawyer to have ex reimburse his share, if any. Or, for the year in question, perhaps they agreed to split any tax liability, even it was not apparent at that time. Again, she'd need to work with her lawyer to get reimbursement. In the meantime, interest is accruing and the IRS is not very interested in what her decree said about who should pay taxes. So you need to look at her whole picture to advise her if she has the funds available and she has a chunk of unreported income and...if it might make sense financially for her to pay the whole tax now to stop the clock ticking with the IRS and then to work with her lawyer and court system re reimbursement.

[OtisMozzetti]

the sad truth

Refer her back to her divorce attorney to interpret their decree. They may have indemnified each other for separate debts that later come to light. Then she needs to work with her lawyer to have ex reimburse his share, if any. Or, for the year in question, perhaps they agreed to split any tax liability, even it was not apparent at that time. Again, she'd need to work with her lawyer to get reimbursement. In the meantime, interest is accruing and the IRS is not very interested in what her decree said about who should pay taxes. So you need to look at her whole picture to advise her if she has the funds available and she has a chunk of unreported income and...if it might make sense financially for her to pay the whole tax now to stop the clock ticking with the IRS and then to work with her lawyer and court system re reimbursement.

The sad truth is that it is wise to pay up to the IRS right now in order to stop the interest and penalties. Then she will have to spend time and money with her lawyer in order to get the former husband to pay up his share. There is just a chance that a quick phone call and/or letter from her lawyer right now even before the IRS gets paid would simplify the process in the long run. The sad truth is that it isn't clear that there will be any recoverable penalty on the former husband for dragging his feet about paying his share.