Copies of Source Documents

[KBTS]

I have a long-time client that is going through a divorce. When she was still with her husband, I had prepared their MFJ return. The last couple years, my client has filed HoH since the kids live with her. My client needs copies of their old tax returns for part of the divorce proceedings.

From my research, I see no issues with providing these to her since she was on the MFJ return. However, what about if her attorney wants copies of source documents to verify income of both spouses - i.e. W2's for her and husband, 1099's etc. What are the regulations concerning that?

[JohnH]

Seems to me you can give her copies of everything, including source documents, since she signed a MFJ return. Then she can give copies to anyone she cares to give them to, including her attorney.

I wouldn't give anything directly to her attorney - there's no need for you to do that.

[ChEAr$]

I wouldn't give anything directly to her attorney - there's no need for you to do that.

Ditto; DITTO. That just makes them greedier, and sometimes cockier.

[Koss]

Source Documents

I might be a little careful about some of the source documents.

It's not clear to me that the spouse, even on an MFJ return, has an automatic right to every document that may have been used in preparing the tax return.

If it is a document that was transmitted with the return, or attached to the return on a paper filed return, such as a Form W-2 or a Form 1099-R, then that is clearly part of the return, and it can be released to either spouse.

But other source documents may fall into a gray area. For example, what about receipts for expenses on a Schedule C, or the taxpayer's own summary of such expenses, whether handwritten or generated from MS Excel or Quickbooks?

I'm not sure a separated spouse has an automatic right to that kind of stuff. And I'm not sure that a Form 1099-B would be any different.

You're dealing with pretty heavy duty Section 7216 issues here. I would err on the side of caution.

Here's an example of why it might be a problem:

Suppose the return shows gambling winnings. Form 1099-G does not have to be filed with the return if there is no withholding. So it's not part of the return. And in theory, the taxpayer might have reported gambling winnings for which no Form 1099-G was ever issued.

So even though the spouse may have seen the return, and may be well aware that gambling winnings were reported, she may not know where they came from. The other spouse might have dropped off the 1099-G without her, back when the return was prepared.

And he might not want her to know where those winnings came from.

Let the taxpayer provide that information, through the attorneys. If they won't cooperate, let the attorney issue a subpoena.

I would be very, very careful about releasing anything other than the tax return, and documents that are considered part of the return.

BMK

[KBTS]

Burton, thanks for the excellent suggestions. I do not remember anything out of the ordinary W-2, 1099 type of things, but I will have to look back through the file to make sure.

[JohnH]

Wow. I've only faced this type of situaiton once or twice, and nothing in recent years. But what you just posted is news to me.

How would this all play out if there was an audit and one of the spouses had disappeared with the return copy and backup info since the return was filed? Would the remaining spouse be left potentiall with no way to see some of the information backing up the return even though they would be held responsible for any additional tax imposed?

Interesting.

[ChEAr$]

BK has some really good points there. I differ in only one aspect however.

Lets' say the wife is requesting copies of 1040 and source documents. I would furnish any source document with just her name and number on it. Even if a W2 or 1099 of spouse were a part of the return, I can't quite see releasing his tax return information without his consent.

[Koss]

Releasing Source Documents

How would this all play out if there was an audit and one of the spouses had disappeared with the return copy and backup info since the return was filed? Would the remaining spouse be left potentiall with no way to see some of the information backing up the return even though they would be held responsible for any additional tax imposed?

You make a good point. But I think the scenario you are describing is a little different than a divorce proceeding.

The underlying issue is certainly the same. Does a divorced or separated spouse have the right to source documents that were provided by the other spouse?

In an audit, the IRS agent can issue an Information Document Request, or even a summons, to anyone who is reasonably thought to have custody of the documents in question. That includes third parties such as banks, and also the tax pro who prepared the return. The IRS can issue such a summons even if the tax pro is not assisting or representing the taxpayer at the audit.

Once you get that kind of summons, you can and must release anything you have, assuming that it isn't somehow privileged.

So I think the spouse does have access to those documents, if the proper process is used. The summons issued by the IRS in an audit is analogous to a subpoena issued by an attorney in a divorce case.

BMK

[JohnH]

OK.
Very good info.
That closes the loop.
Thanks for the follow-up.

I'm going to tell all my clients they aren't allowed to get a divorce.

[Gary2]

Why do you still have W-2s from prior years? You have to keep the 8879 for three years, but as far as I know, you only have to keep the W-2 until the end of the calendar year of filing.

Not that I'm suggesting you destroy them at this point in time.

[Koss]

Copies of Documents

I'm not trying to resurrect the previous thread, but this does bring us back into the subtle question of just what it means to give someone a copy of a tax return.

Before electronic filing, I think it was pretty simple. To me, a copy of the tax return was a photocopy of everything that had been mailed to the IRS. Nothing more and nothing less.

It certainly did not include source documents such as Form 1099-B, taxpayer summaries of expenses, Form 1098 and county property tax bills, or taxpayer records of basis, such as trade confirmations. It did not even include Form 1099-MISC.

It was a bright-line test: if you mailed it to the IRS with Form 1040, it was part of the tax return. If you didn't mail it in, then it wasn't part of the return.

Today, however, the line is less clear. Gary2 raised the question of why a tax pro would still have copies of Form W-2 from earlier years. In my office, we scan and keep that stuff along with everything else, regardless of whether the return is e-filed. (Yes, we e-file almost every return. But we do have some that go with ITIN applications, and others that can't be e-filed for some other reason.)

What I find more subtle is the fact that an e-filed return includes data that would not be mailed to the IRS if it were a paper return. The easiest example that comes to mind is dates of birth. But there are other bits of data that I think go into an electronic return that may not routinely get printed out, but are nevertheless transmitted to the IRS. Certain worksheets, and perhaps certain fields on Schedule D (even the old version of Schedule D, from previous years), such as identifying a transaction as a short sale or a worthless debt.

We end up with several categories of data and documents, and the boundaries are not always clear anymore.

Some data that you collect from the client may not make into the return, or your software, anywhere at all. Suppose, for example, your client's total charitable contributions come to $150.00 (and he is in fact filing Schedule A). He gives you three receipts, for $50 each, from three different organizations. You might scan or copy the three receipts. But on your Schedule A screen, you simply enter $150.00. Your software has no record of the names of the three organizations.

Unless you use a document manager feature in the software, which would actually attach the scanned images of the receipts to the return. But let's not go there just yet...

There's other data that makes it into the software, but is not transmitted to the IRS. For example, I don't think the software sends to the IRS the number of months that a child lived with the taxpayer. But that information is definitely stored in the program, and it can probably be printed out on a dependent worksheet in most programs.

The point that I'm making is that as our work becomes more and more paperless, the boundaries that define what is the tax return and what are the source documents or workpapers are becoming less and less clear.

Taxpayers who use TurboTax and other DIY products routinely print out a "copy of the tax return" that often contains 20 or 30 pages of worksheets and other stuff that was not actually part of the return. Professional tax software sometimes does this too, if the user is not selective about what is printed. DIY taxpayers, and perhaps even some tax pros, are often clueless as to what part of this 35-page document is actually a tax return, and what part of it is something else, that maybe they should not just casually hand over to their lender, or their estranged spouse's divorce lawyer.

I have never been served with a subpoena or a summons to produce a copy of a tax return.

But if I am, and the subpoena only refers to the tax return, and not any source documents or workpapers, I would probably take a conservative position, and produce only the material that would have actually been mailed to the IRS if it had been a paper return.

BMK

[taxea]

I might be a little careful about some of the source documents.

It's not clear to me that the spouse, even on an MFJ return, has an automatic right to every document that may have been used in preparing the tax return.

If it is a document that was transmitted with the return, or attached to the return on a paper filed return, such as a Form W-2 or a Form 1099-R, then that is clearly part of the return, and it can be released to either spouse.

But other source documents may fall into a gray area. For example, what about receipts for expenses on a Schedule C, or the taxpayer's own summary of such expenses, whether handwritten or generated from MS Excel or Quickbooks?

I'm not sure a separated spouse has an automatic right to that kind of stuff. And I'm not sure that a Form 1099-B would be any different.

You're dealing with pretty heavy duty Section 7216 issues here. I would err on the side of caution.

Here's an example of why it might be a problem:

Suppose the return shows gambling winnings. Form 1099-G does not have to be filed with the return if there is no withholding. So it's not part of the return. And in theory, the taxpayer might have reported gambling winnings for which no Form 1099-G was ever issued.

So even though the spouse may have seen the return, and may be well aware that gambling winnings were reported, she may not know where they came from. The other spouse might have dropped off the 1099-G without her, back when the return was prepared.

And he might not want her to know where those winnings came from.

Let the taxpayer provide that information, through the attorneys. If they won't cooperate, let the attorney issue a subpoena.

I would be very, very careful about releasing anything other than the tax return, and documents that are considered part of the return.

BMK

This probably has something to do with the reason why separate f2848's are being required this year. I would get a 7216 from her and then provide her with copies of the documents in the return that address her income. She could send a 4605T to the IRS for what she wants.
I am really getting tired of clients who call us for copies when we have already provided them with one. I suppose the dog eats them. Because of this I charge at least as much as the IRS does for a copy.
In this particular case I think you should suggest to her the she get the copy from the IRS. You could have a confidentiality issue if you accidently give her something she is not entitled to.