Form 8857 Innocent Spouse Relief

[Acownt4it]

Any one have experience filing this form?
Here is the situation:
2004 filed taxes MFJ. Divorced in Feb. 2005. Husband had an early distribution from his 401(k). On the original return this distribution was coded as a rollover. This was done in error. Husband had withdrawn this money to pay child support to wife.

A tax deficiency was not known until TP receive a CP2000 from IRS regarding this early distribution. They are not disputing that the tax is owed, but who has to pay it. Husband does not have the money to pay the additional taxes.

Wife does not feel that she owes the taxes on this because he needed the money to pay her child support. I tend to agree with her and told her we would attempt to get an innocent spouse relief through.

On a side note, he is currently 12 months behind on child support and they are going back to court this week to find out if husband has to do some jail time because of this.

Anybody have any words of wisdom for me other than "run like the wind"?

As always, thanks.

[Taxref]

I think innocent spouse relief is a long shot in this case.

To qualify as an innocent spouse, your client would have to show that she didn't know about a misstatement on the return and that it was something she should not have known about. Based on the message, it sounds as though she did know of the misstatement, but looked the other way in order to collect the child support. While she may have had a good reason, it seems she was aware of the misstatement on the 1040.

[Black Bart]

Know-nothing required

Noel / I haven't had any such cases (at first I thought of "injured spouse") so I did some reading about it and it seems to me that taxref is right. The IRS pub (971) says there are three remedies available (I'm sure you've already checked on these):

1. innocent spouse relief.
2. relief by separation of liability.
3. equitable relief.

Reading all the specs on these, it seems that if she knew about the underpayment or benefited from it, then all these solutions are out the window.

[New York Enrolled Agent]

Noel
I don't disagree with the posts of Taxref or BB. Based on your post (no longer married) it seems any hope you have of innocent spouse would be under §6015(c) - separation of liability. The Tax Court in Culver 116 TC No. 15 said that the burden of proof was on the IRS to show that the "innocent spouse" had ACTUAL KNOWLEDGE of the item that gave rise to the deficiency. If I read your post correctly, it appears the wife DID know about the omission - makes your quest for relief an uphill battle.

[Black Bart]

Gosh, NYEA

I don't disagree with the posts of...BB

...The Tax Court in Culver 116 TC No. 15 said that the burden of proof was on the IRS to show that the "innocent spouse" had ACTUAL KNOWLEDGE of the item that gave rise to the deficiency..

That's the nicest thing you've ever said about me.

I didn't know about that tax court loophole (burden of proof on IRS) -- guess that's where the regs display their superiority to the pubs, eh?