MFS CA

[catax]

I have three separate sets of clients getting a divorce this year. There is little or no cooperation between the parties. In each case I am retaining one of the party as clients (not both). All three of these sets of clients separated in July and are getting divorced (were living separate for less that 6 months of the year). I understood that in CA a community property state that they have to split their income in half and each claim half of the total. What do you do when the other spouse will not cooperate and will not provide their W2 information. Are you aware of any special rules for a situation like this? Nena

[BulldogTom]

I have three separate sets of clients getting a divorce this year. There is little or no cooperation between the parties. In each case I am retaining one of the party as clients (not both). All three of these sets of clients separated in July and are getting divorced (were living separate for less that 6 months of the year). I understood that in CA a community property state that they have to split their income in half and each claim half of the total. What do you do when the other spouse will not cooperate and will not provide their W2 information. Are you aware of any special rules for a situation like this? Nena

There is a code section, and I THINK it is 60, that states that if the spouse is not timely notified of the income and expenses of the other spouse, they only have to use their own. Remember, they only have to split income and expenses during the time of community, not the whole year. And also remember that the IRS don't like you spliting income off from W2's and screwing with their matching. It will probably generate some ill will on their part.

As a side note, you can use this to your clients advantage in the divorce procedings if your client has the higher wages (and you want to get involved). Prepare a schedule of income and expenses for the period of community for the other spouse's attorney. Send it along with a note requesting the information from their client so that the tax returns can be properly completed. Put the code section references in your letter. It leaves a nice audit trail when the IRS comes knocking. The trail leads to the other spouses attorney. SWEET.

Tom

Lodi, CA

[catax]

Thanks for you input. My reading says they can file with their own information if the other spouse doesn't responded by the due date or by extension. Is your understanding that you have to wait until the extension date? Or till the just before the deadline? Thanks, Nena

[BulldogTom]

Thanks for you input. My reading says they can file with their own information if the other spouse doesn't responded by the due date or by extension. Is your understanding that you have to wait until the extension date? Or till the just before the deadline? Thanks, Nena

I have not read that section in a couple of years, so I don't have a good feel for that. I don't think you can drop the info on the spouse on Oct. 15th, but I may be wrong.

Sorry I can't be of more help.

Tom

Lodi, CA

[jainen]

>>the IRS don't like you spliting income off from W2's and screwing with their matching<<

Actually, it's weird but the instructions for Form 1040 say to do exactly that, putting share of community income on Line 7. I prefer to make a Line 21 adjustment based on an allocation worksheet. Don't forget that even if that lying cheat won't share HIS income, you can still stick him with half YOUR earnings before the day he ran off with that tramp.

[BulldogTom]

I know what the instructions say, but I was also told by an IRS agent at a seminar that they don't like it because they cannot match the reporting documents (w2, 1099,K1) to the return. It is only those 9 states, but they cause problems. The agent told me that if a taxpayer files only their own information, the IRS will not question that as the basis for an audit. She also said that on the other hand, it was very likely that they would look closely at a return that kicked out for not matching up in the system.

That is just what I heard.

Tom

Lodi, CA

[Julie]

I had one like that last year....I made all the adjustments in the worksheets that are between the input pages and the 1040. I do not know how well IRS handled it, but I haven't heard anything. I filled in the W2 and 1099R input sheets exactly as the forms came to me, but on the line 7 worksheet I put in the W2 adjustment, labeled "community property adjustment," and so forth.

So that page 1 was correct. I don't know how much went to IRS, but they should be able to figure it out.

[catax]

So what happens in the situation where my client files MFS and has the W2 from the other spouse for the time period of community property. So I split up the income for the community period. What happens when the other spouse does not split the income and only files on there own (which is a smaller amount). I can't imagine IRS or even CA being happy about not getting all of there tax. I do not want my clients return to be pulled and adjusted for filing properly. Any thoughts or experience on this.

I guess this is the year of divorce. I have 4 of these I am working on. Thanks, Nena

[BulldogTom]

This is where I send the schedule of division of income and deductions to the attorney for the other spouse. That way there is no question that the other party got notified. Then you have your audit trail showing you did what you were supposed to do.

It is the same situation where one parent (unmarried) of a child will run down and file their tax return first to get a refund loan, and the other one is really qualified. You document your position, and then when the letter comes, send in your proof.

These things are never easy. I bet if you prepare a schedule for the attorney, your client will come back and say that they will just file with their own information to make the proceedings go smoother. The lawyers don't want to get into this fight on both sides, so they will try to get the clients to back off. I have had it happen to me 3 times.

Tom

Lodi, CA

[jainen]

>>The lawyers don't want to get into this fight on both sides, so they will try to get the clients to back off. I have had it happen to me 3 times<<

Lodi--I wondered where all the friendly divorce lawyers had gone to live!

[MAMalody]

This is where I send the schedule of division of income and deductions to the attorney for the other spouse. That way there is no question that the other party got notified. Then you have your audit trail showing you did what you were supposed to do.

It is the same situation where one parent (unmarried) of a child will run down and file their tax return first to get a refund loan, and the other one is really qualified. You document your position, and then when the letter comes, send in your proof.

These things are never easy. I bet if you prepare a schedule for the attorney, your client will come back and say that they will just file with their own information to make the proceedings go smoother. The lawyers don't want to get into this fight on both sides, so they will try to get the clients to back off. I have had it happen to me 3 times.

Tom

Lodi, CA

Tom, do you get a signed release from your client since you are disclosing his info.

[BulldogTom]

Tom, do you get a signed release from your client since you are disclosing his info.

Never thought about the written part. Of course, I have the client's permission, because they give me the lawyer name and delivery information, and they approve of the disclosure. I guess I should have thought of that.

Thanks Mike.

Tom

Lodi, CA

[catax]

So basically if you just file separately using the clients own income information that is against the CA code. If you have the information on the other spouses infromation and you split the income the return will not match and you will get a notice. And the other spouse may not file on the other part and you have a problem there also.

This seems as if it is going to be a time consuming challenge. It seems it would be lots easier in these situations just to file with your clients own information and forget about all the splitting. I have 4 of these I have explained it will cost lots more in tax and they insist that the other spouse will not cooperate. This tax season is looking bleak.