Never encountered this before and until now this couple has always filed MFS since he is very active in the real estate business and she has a W-2 only. Main reason is not to expose her to liabilities she has nothing to do with. Last year he sold properties and invested in some stocks and mutual funds in a joint investment account. How is this reported on the MFS? Does this follow the rule of who actually contributed the funds or this reported 50/50?
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I believe under the letter of the law, investments follow the party responsible for the investing. the stockbroker statement should have his social security number on it. If the income were split 50-50 I don't know that the IRS would catch it or do anything about it. However, he would have to bail out of the income by producing a nominee statement 1099-DIV. -
Investing in stocks does not need to be reported on the tax return, so not sure what you are asking. Was some taxable income generated from the account? In that case, I would follow the rule that commingling the funds makes them joint, so yes to 50/50. If it was important to keep things separate, they would not be contributed to a joint account. You don't state if community property applies (it does for about a third of the taxpayers), but if so, here is the link from the IRM which describes the situation.Originally posted by Gretel View Post
"Mixing or commingling separate property with community property will transmute the separate property into community property unless the separate property component can be traced. For example, assume a spouse owns a bank account as separate property, where multiple monthly transactions include withdrawals and deposits of community property. Because the separate property portion of the account would be difficult or impossible to trace, in most community property states the account would be transmuted into community property. See, e.g., Fisher v. Fisher, 86 Idaho 131, 383 P.2d 840 (1963)."
"You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe HowardComment
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Thanks to both and yes, important information is missing. By investment I mean related forms, like 1099-INT, DIV and sales. No community property state and each taxpayer has their own checking and other bank accounts. While it is true that it is not important to the couple to NOT intermingle funds, the only reason for MFS (to not expose spouse to liability of hubby) still remains. The investment was done not thinking about possible consequences.Comment
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