Head of Household Dilemma

[taxmcp]

I wish this was an asking for a friend question, but unfortunately it's not. My boss advised a married couple who are not separated and living apart in an email with a Cc to me:

“The third, and better option we can to use to reduce your liability is to file head of household (HOH) status for each of you during these years. This does not result in a married status - so it would not impact benefits, plus it does not cut your deductions as much as a married filing separate status would. In summary, if you both filed as HOH instead of MFJ you will increase in your combined tax bill for those years by $12,502. This approach is still higher than when filing MFJ, but it's the best case scenario for you guys if you chose not to file MFJ.

Lastly our software can separate a MFJ return to a MFS return systematically, so there is no charge for that change. But in order for us to prepare the new returns with HOH status we have to re-do them. Therefore that change will result in an additional fee of $415.”

Should I inform my boss we can’t do that and why or should I inform my boss I can no longer work for him or her and why?

[Uncle Sam]

Absolutely you should.
By preparing the returns the way he/she proposes, it's against Circular 230 rules for knowingly violating the tax provisions.especially Section 10.34 - Standards with respect to tax returns and documents, affidavits and other papers. I would show your boss the requirements and restrictions of filing HOH when clearly they are married and not considering divorce or separation and have lived together in the same household all year.

[Lion]

Agree. HOH is now even on the Due Diligence form with a $520 (?) preparer penalty.Inform your boss privately with the cite Sam mentioned and any other backups you can lay your hands on quickly. And, make sure YOU are not the one that's asked to sign or even prepare those returns.

[TaxGuyBill]

As the others have said, you can not prepare the tax return that way.

However, I would politely talk to your boss about it, and humbly tell him that it is your understanding that is not allowed. First, show him Question #14 on Form 8867. Then follow that up with Publication 501 and possibly IRC §2(b) that discuss Head of Household and "Considered Unmarried".

https://www.irs.gov/pub/irs-pdf/f8867.pdf#page=2

https://www.irs.gov/pub/irs-pdf/p501.pdf#page=8

https://www.law.cornell.edu/uscode/text/26/2#b

Most likely, your boss just made a mistake and/or misunderstood how Head of Household works. If that is the case, talking to him about it (with the IRS documents in your hand showing him that he is wrong) will correct the matter.

In the event your boss insists you prepare the tax return that way anyways, you can not do that, even if it were to mean quitting (and reporting your boss to the IRS). But hopefully it won't come to that because hopefully your boss just make a mistake and/or misunderstood the rules.

[ATSMAN]

Who will be signing the return if you are an employee? I HOPE it is not you. If your boss insists AND you don't want to get fired then have him sign the return??

[TAX4US]

From my perspective I see things in this that the e&o ins will not cover along with a huge rat in the woodpile.

[Dude]

Of course you would not do this, I know this happens but I never thought it was publicly promoted. This is up there with advertising that you can substitute your last paycheck for a W-2. The fact that he put it in writing makes me want to give him the benefit of the doubt and assume he is so focused on client growth that he overlooked a clear violation. If after telling him he does not email a retraction well....you may want to find somewhere else to work.

[spanel]

Why would anyone File MFJ is this was actually the law... Clearly he wants to inflate refunds to be able to charge $415!!!! more!!!

Chris

[taxmom34]

another point is that they can't both file as head of household, one has to file MFS. that should change the scenario the boss has presented.

[dborg2001]

I thought that if you are a married couple and living together you have two filing options, MFS or MFJ.
I thought to file as Head of Household the taxpayer needed to be:

(1) unmarried or considered unmarried on the last day of the tax year, able to claim a qualifying person, and pay more than half the cost of keeping up a home.

(2) considered unmarried carries some requirements:
(a) paid more than half the cost of keeping up a home.
(b) spouse did not live with you the last six month of the tax year.
(i) temporary absence due to special circumstances does not qualify.

This synopsis is not all inclusive. This is from the 2018 Publication 501, pages 8 and 9.

Could it be possible that both spouses could file Head of Household, if they meet the requirements on their own merits?

I would suggest that if your boss, supervisor or someone who should know better told you to file Head of Household for each taxpayer, get out now. If something goes wrong, he/she will not come to your defense, you will be paying the penalties ($520 for each infraction on the 8867)