Form 8857- Innocent Spouse Relief

[Taxman VA]

First time filer of aforementioned form and here are the facts.
Husband and Wife are now divorced. In 2010, they decided to separate physically late in the year but file a 2010 joint return. Wife is a partner in an attorney partnership and the 2010 tax return was filed late b/c of the 1065 late filing. IRS assessed late filing penalties/failure to pay penalties/ interest charges totaling $580. In 2011, husband filed HOH status and since he was primary TP on the 2010 return, they took the entire amount out from his 2011 refund. WRONG in my opinion!
I know the Form needs to be filled out and sent in. What else should be sent?
* Proof that the 1065 was filed late. My position is at a minimum that at least 50% should be refunded to the husband if not all of it. Return was filed late b/c of the 1065 as the K1 was not ready on time.

Any other point here that I should know about? I do think he has a good chance here! What do you all think?

[KathMorgan]

Innocent or Injured?

I think you actually want the Injured Spouse form instead of the Innocent Spouse. unless you are in a community property state you probably stand a pretty good chance of getting at least part of his refund back. Once the form is filed it will take a minimum of 14-16 weeks to be processed.
If you are in a community property state, heck, go ahead and filed it, then the most they can do is say no. I'm in LA and sometimes they get it back and sometimes they don't. Not much rhyme or reason that I can see as to why or why not.

Kathy

[Taxman VA]

Innocent Spouse Relief

Kathy- Thank you for your reply.

The reason that I selected Innocent spouse over Injured spouse was b/c Part 1 item #3 on the Injured spouse form- the question to answer covered legally enforceable past due debts owed only by one spouse. In my situation most of the Fed tax penalty is for late filing and on a joint return it would seem to me that both spouses are responsible for filing the return on time. The return being late was b/c of the wife in this case and the husband's 2011 refund was dinged for the whole $580 which at a minimum the wife should take her share of the 50%.

Does that help explain why I'm going with the Innocent spouse?

If not please let me know.

Thanks,

Taxman VA

[Dusty2004]

How can he prove the late return penalty is from her

How will he be able to prove that the late return penalty if from her holding up the return and not him? She will have a chance to respond and will obviously dispute this. What can he use to prove that it was her?

Dusty

[New York Enrolled Agent]

I think you actually want the Injured Spouse form instead of the Innocent Spouse.

Injured spouse requires a joint tax return (not the case in 2011) where one spouse (the injured spouse) has no obligation for a previous tax liability.

To Taxman VA - why didn't the couple file an extension if they knew Form 1065 was going to be late?

[JohnH]

You think maybe they didn't worry about filing an extension because they erroneously assumed the late-filed 1065 & K-1 would give them somebody to blame (and pay up) if a penalty showed up? I've had clients ask that very question before.

[Taxman VA]

How will he be able to prove that the late return penalty if from her holding up the return and not him? She will have a chance to respond and will obviously dispute this. What can he use to prove that it was her?

Dusty

The 1065 was filed late and the ensuing K1 held up the filing of the 2010 joint filing. I didn't prepare the return in 2010 but the IRS penalties commenced after 10.15.11 as the return wasn't filed until 03.29.12 for 2010. The entire pen/int was taken from the husband's 2011 refund as he was the primary on the 2010 tax return. At best, he should only have to bear the brunt of 50% not 100%. This is my position.

[Taxman VA]

Injured spouse requires a joint tax return (not the case in 2011) where one spouse (the injured spouse) has no obligation for a previous tax liability.

To Taxman VA - why didn't the couple file an extension if they knew Form 1065 was going to be late?

I didn't file 2010 return but IRS late filing penalties/int etc... commenced starting after 10.15.11 b/c they didn't file the 2010 until 03.29.12. Extension as we both know covers you for 6 months and they went way past that. Since husband was primary TP on the jointly filed 2010 return, he got dinged for the whole amount on his 2011 refund which it should only be 50%. This is my position.

[Taxman VA]

You think maybe they didn't worry about filing an extension because they erroneously assumed the late-filed 1065 & K-1 would give them somebody to blame (and pay up) if a penalty showed up? I've had clients ask that very question before.

Actually, they did file an extension as the IRS penalty for late filing commences after the 10.17.11 deadline. The 2010 MFJ return wasn't filed until 03.29.12. My position is the husband was dinged for the entire pen/int and his ex should at least be liable for 50%.

The late filing was in my opinion from the facts derived so far entirely b/c the wife's 1065 was filed late. Thus, late issuance of the K1 which caused the personal return to be late as well. It really wasn't the husband's fault at all. I may go after the whole amount but at a minimum she should take 50% on a jointyly filed return.

[JohnH]

OK. I overlooked the fact that it was a 2010. return.
Guess you just need to write IRS a letter that will make 'em cry.

[WhiteOleander]

The 1065 was filed late and the ensuing K1 held up the filing of the 2010 joint filing. I didn't prepare the return in 2010 but the IRS penalties commenced after 10.15.11 as the return wasn't filed until 03.29.12 for 2010. The entire pen/int was taken from the husband's 2011 refund as he was the primary on the 2010 tax return. At best, he should only have to bear the brunt of 50% not 100%. This is my position.

Well, the IRS couldn't care less about that. They will take the money from anyone they can. They are not bound by 50/50 philosophies or court orders for that matter.

He cannot file as injured spouse because he did not file with the spouse he claims he was "injured" by. He cannot file innocent spouse because he is liable for the debt.

His only recourse would be to file in small claims and try to get 50% from the ex-wife that way. The IRS will not split it out. Period.

[erchess]

Summary

I'm not sure OP has gotten the message so I will be as blunt and concise as I can.

This client is neither injured spouse nor innocent spouse as those terms are used in our business.

The tax issue is closed and cannot be reopened. The IRS has its money and will not be giving any back.

This taxpayer's only recourse in this situation is to the courts. For that he needs a lawyer who will likely need the tax professional's help in understanding the situation and explaining it to a court. Depending on where he is he might be better off going to small claims court without a lawyer but I would still advise him to consult one in preparation of the case.

[KathMorgan]

Primary Taxpayer

The reason the 2011 refund was snatched from the husband has nothing to do with him being the primary filer on the joint 2010 return. It has everything to do with the fact he filed his 2011 return before he ex-wife. If she had filed first the IRS would have snatched the entire amount from her instead of him.
Now that I have read more details, I agree that the husband does not qualify for either the innocent or the injured spouse as he and the ex-wife were both "jointly and severely" liable for the penanties. So as far as the IRS is concerned whoever they could get the money from they will.
I have to agree with Erchess, his only recouse now is to take her to court for her part of the money. As we are talking about 50% of $580 it's going to cost him more in court then it his benefit would be. If the division of property and debts has not been done in the divorce yet he could get his lawyer to add this as a joint debt to be divided instead of a completly separate court action. Just a thought.
As for the contention that it was "all the exiwifes fault because she didn't get her 1065 and K1 done in time" and that is why he was late filing his return. I don't buy that at all. He always had the option to file a MFS return by himself before the deadline and then change to MFJ (or not) whenever she was ready if he wanted to make sure he met the deadline himself.
Sometimes there are consequenses for our actions or inactions and this is one of them. Whoever his tax preparer was for 2010 did him an injustice if they did not give him this option, but, it is still on him.