Innocent Spouse Mess

[Snaggletooth]

During my long years I have never had an "innocent spouse" situation, aside from people who want to file MFS.

Hubby will have any possible refund offset by State of Tennessee for back child support. New wife naturally doesn't want to have to pay for this. Last year's offset was accompanied by a letter advising wife of her right to claim "innocent spouse."

Where is the guidance for "innocent spouse" other than for her to just simply file MFS?
Can she benefit from this and still benefit from the MFJ rates?

Additionally, these are low-income people and the amount of tax savings may be more trifling than the savings can justify. Entire refund for 2008 was only $200, and the State will be waiting to offset this year's refund as well if there is any.

[JohnH]

Ron: I think you need to follow the "Injured Spouse" rules for this situation, rather than "Innocent Spouse". Here's a link to the form - I'v enever prepared but one of these and it was 5 or 6 years ago. I think it was fairly simple and it did work...

http://www.irs.gov/pub/irs-pdf/f8379.pdf

As long as there isn't business income or separately-calculated items or credits, I think the form just has you do a simple percentage allocation of everything - in many ways similar to the calculations necessary for a multi-state return. Instructions are a part of the form.

The main problem is you can't predict how it wil turn out, so you can't give the client any sort of estimate of the results. You do the allocations, then IRS grades your paper and figures the allowable refund.

[thomtax]

I made the mistake of starting to do the innocent spouse one year, before I realized that injured spouse was the correct form. It was a mess, but the injured spouse is a fairly simple one to do for a regular working couple, at least in Drake software. You enter a few items and the software does the separation for you. I usually do a couple of these each year.

LT

[gkaiseril]

You can set what item applies to which spouse as a reccommondation to the IRS on how to divide the items. This can change the amount of refund available to the husband.

[Black Bart]

I've done several, but

...Where is the guidance for "innocent spouse" other than for her to just simply file MFS? Can she benefit from this and still benefit from the MFJ rates?

Additionally, these are low-income people and the amount of tax savings may be more trifling than the savings can justify. Entire refund for 2008 was only $200, and the State will be waiting to offset this year's refund as well if there is any.

don't like to 'cause it sometimes gets messy between the spouses. When there's low-income folks involved the EIC is frequently substantial -- problem is, while you can allocate the income to each and put the kids on whichever one you want, IRS says don't touch the EIC computation. I called to see how IRS would split that -- they didn't know (What a surprise!) -- said the computer would handle it (sounds like TurboTax) and just wait for the refund. Since I don't see the clients again this year, I never find out how it was divided up and next time they don't remember.

They can get MFJ benefits and Injured Spouse is preferable to MFS status which, as you know, causes loss of benefits: babysitting credit, fully taxable social security benefits (a problem 'cause many low-incomes are on disability SS), education credits (not usually a factor), loss of EIC (THE main thing).

Funny thing about these with low-incomers is that the main consideration is immediate cash in the pocket -- most couldn't care less about getting credit against the debt (usually back child support) because they never intend to pay it off anyway. Occasionally the motive is getting even -- I had a straying spouse in who fathered a child elsewhere while married to now-spouse who was so ticked-off that she refused MFJ, refused Injured Spouse, and filed MFS, thus passing up $2,000 of EIC credit on his $2,500 debt and collecting her $300 withholding back.

"Serves him right," she said. But I kept thinkin' "Well, you're married to the guy; wouldn't it have better for the household finances to...."

[JohnH]

Good points. You could have also pointed out how actually paying some of his child support might benefit the kids he already fathered, but I guess she's not interested in the morality of the whole thing. It's hard to think about what's right or honorable for the innocent victims when one's feelings are hurt.

[Black Bart]

Well, the

Good points. You could have also pointed out how actually paying some of his child support might benefit the kids he already fathered, but I guess she's not interested in the morality of the whole thing. It's hard to think about what's right or honorable for the innocent victims when one's feelings are hurt.

kids usually get the short end of the stick alright, but sometimes clients tell the truth. Dad says the kid's not even living with this mother anymore and she's just collecting the money and blowing it on herself (I know him--he's a tad shady but doesn't generally lie; I know her too and she's capable). He says she knows he knows, but that a court dispute isn't worth it for $2,500.

P.S. Speak of the devil, as I was typing this, a client we filed last month just called and says he "forgot" to tell us that his wife owed a student loan, IRS has grabbed his money, and what can we do about it? Tragic, eh? Amazing, the rise in faulty memories during tax season. Told him we'd do an Injured Spouse 1040X after the dust settles.

[JohnH]

And that reminds me of one I prepared a couple of weeks ago. He just got married last year and when tax time rolled around she casually mentioned that she owes quite a bit to IRS so any refund they get will get swiped. When he told me the story, I was beginning to wonder if "Injured Souse" was about to take on a more sinister meaning. There aren't any dependents and no EIC due to income level, so it was a little simpler to handle. We're filing MFS and once his refund is received we'll amend to MFJ. Thankfully, that seemed to calm him down.

[Jesse]

Had someone stop last week that has not filed since 2000. He had refunds coming back every year - which would have been intercepted for child support and the ex wasn't spending the $$ on the kids, yada yada, so he wasn't going to give her the satisfaction of receiving his refunds.

Now he wants to file bankruptcy and guess what? All of those tax returns need to be filed. Karma my dear, karma!

And I suppose he wants me to bill him so he can include that in his bankruptcy as well, thanks, but no thanks, not interested!

They also don't seem to understand that the back support doesn't disappear, I had a client that had child support coming out of his social security.