Beat up Ex-Spouse

[Kram BergGold]

What Does This Mean?

" she knows the facts prior to signing the joint return"
I took this to mean that she knew he was omitting income or overstating deductions. This is why I said she can't use innocent spouse. If this is the case, then it is safe to say you know he is cheating and you can't preparet the return. However, now I am thinking you meant something else. What specifically did you mean?

[Corduroy Frog]

Not knowledgeable of Facts

Mark, if you're asking what was meant...

She is ignorant of the facts of his business, did not play an integral part in the business, had no access to the business checkbook, etc. She is aware that he owes taxes, but will have no idea how much until she has the opportunity to sign the joint return. She does not know that he hid income, cheated on deductions, etc. and neither do I, as I am proposing to prepare Sch C based on the records he has provided me.

[ATSMAN]

Mark, if you're asking what was meant...

She is ignorant of the facts of his business, did not play an integral part in the business, had no access to the business checkbook, etc. She is aware that he owes taxes, but will have no idea how much until she has the opportunity to sign the joint return. She does not know that he hid income, cheated on deductions, etc. and neither do I, as I am proposing to prepare Sch C based on the records he has provided me.

Corduroy Frog, I got the impression from your posts that you were the ex wife's tax adviser, But now you say you are proposing to prepare Sch C for the ex husband? Are you representing both ex-spouses?

This brings this discussion to another level, one of conflict of interest. You say " but will have no idea how much until she has the opportunity to sign the joint return.". If you are preparing the ex husband's return you will know before she signs anything the difference between MFJ and MFS given the records that are provided to you by both ex spouses.

I personally would NOT represent both sides even with a waiver statement, given the mess of this situation. At the end I may be the only one hated by both sides!

[New York Enrolled Agent]

Mark, if you're asking what was meant...

She is ignorant of the facts of his business, did not play an integral part in the business, had no access to the business checkbook, etc. She is aware that he owes taxes, but will have no idea how much until she has the opportunity to sign the joint return. She does not know that he hid income, cheated on deductions, etc. and neither do I, as I am proposing to prepare Sch C based on the records he has provided me.

C.F. - are you crazy or just playing ostrich with your head in the sand? She knows nothing, you know nothing - just using some numbers from hubby. Run from these people. I assume you're familar with the provisions in C230 regarding due diligence and §6694 regarding preparer penalties. I repeat - run from these people.

IMO, you have zero chance of prevailing for any innocent spouse relief based on your original question. Relief under §6015(b) and (c) is not available for an underpayment of income tax on a joint return. Relief under §6015(f) can be used for underpayment issues but obtaining it is rare and probably unobtainable for her. If she signs the return she is liable for the tax.

[Corduroy Frog]

Not as crazy as one might think

It is as if I myself were on trial rather than the tax circumstances. Several times I have provided information, none of which has been evaluated in terms of its application under innocent spouse, but instead with what can happen with repercussions to myself. I have not told who the client is, and I have covered myself under all but the remotest of likelihoods.

The only address to my original question was imparted by NYEA, who tells me the only likelihood of relief is under 6015(f).

Nonetheless, I appreciate all who have responded, and all who have expressed concern.

[Bees Knees]

It is as if I myself were on trial rather than the tax circumstances. Several times I have provided information, none of which has been evaluated in terms of its application under innocent spouse, but instead with what can happen with repercussions to myself. I have not told who the client is, and I have covered myself under all but the remotest of likelihoods.

The only address to my original question was imparted by NYEA, who tells me the only likelihood of relief is under 6015(f).

Nonetheless, I appreciate all who have responded, and all who have expressed concern.

Glancing through the other posts, I think there have been plenty of answers to your original question. You can't claim innocent spouse relief if the spouse is not innocent. Section 6015(f) says: "taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency..." How can you claim your client qualifies for this when she is looking for a way ahead of time to reduce tax without being liable?

I know facts and circumstances is a matter of opinion, but lets get real. How can anyone claim that plotting ahead of time for a loophole can somehow make you innocent?

And if others have not stressed this enough, you are in a dangerous position trying to advise both. The husband is best advised to file married filing joint. The wife is best advised to file married filing separate. There is obviously a conflict of interest here, because you cannot possibly advise both clients without giving bad advice to one of them.

[Gary2]

Rev. Proc. 2003-61 says, at 4.03(2)(b)(i):

Abuse . Whether the nonrequesting spouse abused the requesting spouse. The presence of abuse is a factor favoring relief. A history of abuse by the nonrequesting spouse may mitigate a requesting spouse's knowledge or reason to know.

Does this alter anyone's opinion?

[New York Enrolled Agent]

Rev. Proc. 2003-61 says, at 4.03(2)(b)(i):

Does this alter anyone's opinion?

Gary2 - spousal abuse can be a defense. But there is a new Rev Proc. 2013-34 which should be used for any future cases.

The last part of 2013-34 contains:

SECTION 6. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2003-61, 2003-2 C.B. 296, is modified and superseded.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective for requests for relief filed on or after September 16, 2013.

[TXEA]

C.F. - I think I adequately responded to your question with the possibility of willful blindness on the part of the spouse. You prefaced this whole discussion with some variation of "Will she qualify for innocent spouse relief" See the following:

“A spouse cannot obtain relief under section 6015 in a case involving disallowed deductions ‘“by simply turning a blind eye to–by preferring not to know of–facts fully disclosed on a return, of such a large nature as would reasonably put such spouse on notice that further inquiry would need to be made’”.” 2013 T.C. Sum. Op. 34, at p. 18

----Emphasis on "preferring not to know"

So, given that you are worried about innocent spouse relief and it appears you may be preparing both tax returns, is it not your job to "scrub" that Schedule C to help protect X W from X H (two parties whose interests are not the same)?

Should you interview both to ascertain that the previous Schedule C's are correct?

Does the income reported match the couple's lifestyle? If not, would it be reasonable that X W would know the reported income does not match the couple's lifestyle?

Could X H be hiding income from X W? Is there a financial incentive for him to do so?

Is it possible that X W is aware of any past transgressions by X H? Have you asked her?

Is it possible that you have an insurmountable conflict of interest in preparing either one of the these tax returns or joint tax return?

There is no win here for you. I know you are focused on X S's ability to obtain innocent spouse relief, but to do so might require you to ask questions of each that are contrary to the individual interests. You can not protect X S's possibility of innocent spouse relief without asking her some tough questions.

Have you considered what your E & O carrier would think about you handing these two tax returns or joint tax return?

[Corduroy Frog]

I give up

I gave this thread a title of a "Beat-Up Spouse" but the only party that is being "beat up" is ME.

Whatever I've misled or miscommunicated, let it go. And if I deserve it, then so be it. I'm big enough to be a punching bag, and am not losing sleep over this, but trust me, you'll have another opportunity to whup up on the CF. It happens from time to time.

Notwithstanding, I appreciate all of you that have taken time to respond, I hope you will continue to do so hitherthence.

[Gary2]

Gary2 - spousal abuse can be a defense. But there is a new Rev Proc. 2013-34 which should be used for any future cases.

The last part of 2013-34 contains:

SECTION 6. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2003-61, 2003-2 C.B. 296, is modified and superseded.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective for requests for relief filed on or after September 16, 2013.

I actually found 2003-61 by searching for 2000-15, which I think is the one cited in the regs. And I told myself, I really ought to do yet another search, because I was sure that there was something more recent than 2003 in support of abused spouses. But it was late, and the first search returned more irrelevant hits than relevant ones, so I figured one cite should be enough to convince people that documented abuse could outweigh the "knowingly" aspect.

The 2013 wording is longer, and clearly stronger in some ways, but I won't opine as to how often the IRS actually accepts that argument.