MFS- Child Dependent-AGI

[vegasbillea]

Client lives in a Community Property State and has lived with his spouse all year (client has not filed in several years and wants to get caught up on all of his fllings and claim 2 of the children on his). Spouse has filed her return as HOH and claimed all of their children on her tax return and used just her income.
Question-Since parents did not agree who gets to claim which children and since the children lived with both parents the same amount of time, the next tie breaker rule states the one who has the highest AGI get to claim the child dependents; but if you have to allocate the community property income to both equally, how is the highest AGI determined? Looking at his W2 and what he has told me about her work history, it would appear he would have a higher income.
To complicate matters she will not give him any wage or tax information to him or copies of her returns she has filed.
In the past when I did a MFS return, their has been an agreement who gets to claim which children and both incomes were made known.

[Nashville]

Get affirmative information

Question-Since parents did not agree who gets to claim which children and since the children lived with both parents the same amount of time, the next tie breaker rule states the one who has the highest AGI get to claim the child dependents;
To complicate matters she will not give him any wage or tax information to him or copies of her returns she has filed.

The "tie-breaker" you speak of is so remotely applicable that it may as well not even exist. I have taxpayers tell me all the time that the kid spends EXACTLY the same number of nights in one home as in another. Vegasbill, this is virtually NEVER the case. In fact, when they tell me this, then I tell them the child needs to be at one home or another 51% of the time, and if not, then NO spouse gets to claim the child. They are only trying to place the burden on you when they tell you this. Usually, the party telling you this is NOT where the child spends 51% of his nights.

The "tie-breaker" DOES apply only in years where husband/wife do spend most of the year living together, usually in the final year of a divorce. In that case, it is quite possible for the child to spend over 51% of their nights in the home of both parents, and the tie-breaker DOES apply.

The reluctance of the ex-wife really simplifies, rather than complicates the situation. If he has been notified by the IRS that he has not filed a return, that means that 1)He has not filed a return by himself, and 2)She has not filed a joint return for any years in question. This means the ex-wife has filed either single, head/household, or married/separate for those years, and his options are reduced to filing married/separate for any years they were living together on December 31. Notice I said it SIMPLIFIES the situation, but does not necessarily LOWER TAXES for those years.

Before I entertained any discussion about claiming children, I would ask this guy to clarify unequivocably that the child(ren) spent more than half their time with him. None of this wishy-washy, "Well, I dunno, we're kinda 50/50, judge ordered joint custody"...

Additionally, any years married are filed as married/separate. Only by consent of ex-wife can this be changed, and your post says this is not an option. And they cannot change from married/joint to married/separate. Ex-wife did not file married/joint or he wouldn't have been notified of a failure to file. I don't believe the issue of community property differs in other states where income-producing property is jointly owned, i.e. allocation still has to occur.

Sometimes as a practitioner, you have to clear up these foggy issues with clients. You can't let them bring the fog into your office and cause you to be foggy too.

[vegasbillea]

Thanks for the reply

Nashvill thanks for taking the time to reply, you are so correct that be on guard of becoming foggy, but let me expound on the situation, the client has not filed a return in 4 yrs, yes, the couple lived together all 12 months of the year, she file HOH and he did not file a return. Fast forward to 2015, they got a divorced in 2015 of Feb when he moved out of their home.
I have IRS trascript for those years and no, there was not tax returns filed or SFRs. I understand what you are refering about "bed nights", this is not the case,they lived together all year in the same home.
Again, she filed HOH and he did not file. They lived together all year from 2009 - 2014 and he moved out in 2015 after their divorce.
In TTB page 3-15 top left side "Qualifying Child of more than On Taxpayer" the part of Parent vs Parent, look at the footnote and it states part 2 "if the child resides with both parents an equal amount of time during the year, the tiebreaker goes to the parent with the highest AGI, so the question is "since they live in a community property state and wages is considered commnity property and must be divided equally, how is AGI determend?

[Nashville]

MFS Required

Nashvill thanks for taking the time to reply, you are so correct that be on guard of becoming foggy, but let me expound on the situation, the client has not filed a return in 4 yrs, yes, the couple lived together all 12 months of the year, she file HOH and he did not file a return. Fast forward to 2015, they got a divorced in 2015 of Feb when he moved out of their home.
I have IRS trascript for those years and no, there was not tax returns filed or SFRs. I understand what you are refering about "bed nights", this is not the case,they lived together all year in the same home.
Again, she filed HOH and he did not file. They lived together all year from 2009 - 2014 and he moved out in 2015 after their divorce.
In TTB page 3-15 top left side "Qualifying Child of more than On Taxpayer" the part of Parent vs Parent, look at the footnote and it states part 2 "if the child resides with both parents an equal amount of time during the year, the tiebreaker goes to the parent with the highest AGI, so the question is "since they live in a community property state and wages is considered commnity property and must be divided equally, how is AGI determend?

Thanks for the explanation - I don't think a thing has changed from my earlier post, other than it appears the tie-breaker rules DO apply since the child(ren) did live with both parents for all those years.

Your client must file MFS for all those years, as you indicate all years 2011-2014 they lived together. The ex-wife will be shocked when that requirement also is upon her and IRS revokes her status of HOH for the years she filed. She will pay a heavy price for her mis-filing as will your client.

I don't file in any "community property" states, but I believe for tax purposes, wages are attributable to the earner and are not considered to be community income. I believe they would be attributable to the earner for the tie-breaker as well. But I could be wrong about that because I don't know for sure.

[FEDUKE404]

Wife may have a major tax problem of her own

...

Your client must file MFS for all those years, as you indicate all years 2011-2014 they lived together. The ex-wife will be shocked when that requirement also is upon her and IRS revokes her status of HOH for the years she filed. She will pay a heavy price for her mis-filing as will your client.

...

This was my first thought that came to mind.

The situation is messy enough if only MFS/MFJ and related who gets the dependents (+CTC?) is the major issue.

If the wife has been (erroneously) filing as head of household, when her/his only two options (assuming lived together and "abandoned spouse" issue does not apply), then she could be in for a very rude awakening when the IRS (or you) refigures her correct tax liability for recent years.

Also, note the difference between being allowed to file Form 2441 expenses when HOH versus MFS. . . .

FWIW: Were I to jump into this tax-prep swamp, I would require some substantial proof/statements as to what really occurred during the relevant years. . .as well as a hefty down-payment up front for professional services.

FE

[Nashville]

Earned Income Credit

FEDuke you've tapped into the same thought process.

Ex-wife should also be aware of what will happen to Earned Income Credit for MFS filers. If she took any she will
have to pay it back. Absolutely no EIC for MFS.

For VegasBill, be prepared for an ultimate confrontation with ex-wife or her representative.

[vegasbillea]

Thaks for Response

To FE and Nashville, thank you both for your responses, and I will take to heart what you have advised.
I do have statement and retainer, and I advise client to understand more likely there will be IRS correspondence and or
notices given to both as he is claiming 2 of the 6 children.
In the community property state where the client resides, yes an allocation of wages must be done as it is commpunity property.
Again, thanks to the both of you again for taking the time to respond.