Estimated Payment Confusion in Divorce

[Lee B]

Clients divorce finalized in November 2022. Estimated payments for the first 3 quarters of 2022 were paid from a joint account.

My client W just received a letter from the IRS billing her for about $12,000.

Looking at the details of the letter the IRS credited the husband with 100% of the estimated payments for the first 3 quarters.

Any good ideas other than responding in writing to the CP23?

Thanks in advance

[BrewOne]

How friendly are they?  I had this once and fortunately, the primary taxpayer called the IRS and straightened it out.

It is an ongoing problem, partly due to antiquated technology.  ATX (on the 1040-ES) defaults payments to primary taxpayer (which you can override but you can have problems either way)--secondary taxpayer can have estimated payments under their social security number and IRS doesn't attribute the payments for the joint return--just leaves the money sitting under the spouse's account.

If the ex won't cooperate, it shouldn't be too difficult to show that the payments came from her.

Because of this, one of my colleagues won't file a couple jointly if the secondary taxpayer has a business. 

[Lee B]

25 minutes ago, BrewOne said:

How friendly are they?  I had this once and fortunately, the primary taxpayer called the IRS and straightened it out.

It is an ongoing problem, partly due to antiquated technology.  ATX (on the 1040-ES) defaults payments to primary taxpayer (which you can override but you can have problems either way)--secondary taxpayer can have estimated payments under their social security number and IRS doesn't attribute the payments for the joint return--just leaves the money sitting under the spouse's account.

If the ex won't cooperate, it shouldn't be too difficult to show that the payments came from her.

Because of this, one of my colleagues won't file a couple jointly if the secondary taxpayer has a business. 

Unfortunately, they aren't talking to each other. Any communication gets passed through their son:(

[Max W]

Try the  PPL, first.  If they can't fix the problem, they should be able to  tell you what to do.

[Abby Normal]

ATX has a place to enter estimated tax payments in this situation. It's part of the 1040 form. One of the last pages.

[DANRVAN]

At this point I think you will need cooperation from XH since the return has been filed and by default the estimate goes to him.

Anything in the divorce agreement in regards to tax estimate?

 

 

[Corduroy Frog]

I had this come up twice in the past.  Absent any agreement among the parties to deal with the difference away from the IRS coffers (which would be much easier), the IRS has a method whereby they can allocate payments.

1. Calculate the AGI separately, using a 50-50% split on joint income such as bank interest  Then calculate the tax liability separately, using Married and Separate tax rates.  (The result should be higher than taxes calculated any other way).  Note the percentage allocation between spouses.
2. Apply credits which appertain to each partner.  For joint credits, split them in proportion to the percentages described above.
3. Apply "other taxes" which appertain to each partner.  To be honest, I don't know how to allocate the NIIT.
4. Using the tax liability calculated normally (Single, HH whatever), factor these tax liabilities in proportion to the separately calculated liabilities from 1-4 above.
5. Apply payments to the source from which they came.  For joint estimated payments, split them in the same proportion as discussed above.

I'm not the best in putting forth things into words.  Better in Math than in syntax.

 

[Lee B]

In over thirty years I have only had three divorced clients and the previous two divorced clients didn't have any estimated payments,

so this is a learning experience for me.

Thanks for the feedback everyone.

[Lee B]

3 hours ago, Abby Normal said:

ATX has a place to enter estimated tax payments in this situation. It's part of the 1040 form. One of the last pages.

Yes, Drake also has a worksheet for that which I filled out and attached, which the IRS ignored!

[Gail in Virginia]

Even on a couple who are still married, and still filing joint, I have had problems with this.  If spouse makes the estimates using their IRS account, the estimates are credit to their social security number and may not be credited on the joint return.  What a broken system!