Divorce Signs In Tax Preparation

My husband and I have been have been fighting over finances, the kids, his job..just about everything lately. But one thing I could always rely on about him over the last twelve years is that he has always handled all the financial stuff, and he always filed our taxes on time. But this year is different. It is almost the end of April and he still hasn’t filed our taxes yet. He said he was just too busy this year. He said he filed an extension, that he’ll get to it when he can, and that I should stop nagging him about it. But I’m worried. Could I get in trouble with the IRS if he doesn’t pay our taxes?

Yes, you definitely can, and getting in trouble with the IRS may not be the only thing you have to worry about.

Everyone knows (or should know) that federal tax returns must be filed by April 15 of each year. Extensions can be filed, but asking for more time without a good reason is generally a bad move. Soon you’ll find yourself filing another extension and then another. Over the period of borrowed time, records can be lost. You will have to pay late filing penalities and compounding interest. Most tax experts recommend that you file your taxes on time unless there is a real reason they can’t be done by the deadline.

You probably have been filing “married filing jointly”, as most married people do. However, just because your husband is the one who has been filing the taxes doesn’t mean you can’t get in trouble. Filing jointly creates “co-liability” for the tax. This means that the IRS can go after either spouse for the entire tax amount as well as penalties and interest. And it does not matter if your husband is the major, or only, wage earner. You are still liable for the entire tax burden if you file jointly.

It seems odd that for the last twelve years your husband has managed to file the taxes on time and now suddenly he cannot. Unless he has a good reason which he can clearly explain to you for filing the extention, you should be skeptical. If your marriage is already rocky, procrastinating in filing the tax return may be a red flag that indicates your husband is thinking seriously about his “marriage exit strategy”- divorce. In skirting the tax preparation responsibility he may be buying time so he can put himself in the best financial position, or he may be seeking to get you into trouble with the IRS. He also may be trying to back you into a corner with a deadline so that you must quickly sign the return without reading it. A spouse plotting their strategy for divorce will make all kinds of excuses for their suddenly odd behavior. They will become authorative and tell you to “mind your own business”. But this IS your business because you are jointly liable.

Here are some other tax related red flags that your spouse may be planning a divorce:

Underwithholding. If he is employed, try to get a copy of his paycheck stub and look at how much he told his employer to withhold for taxes. The lowest effective federal tax rate is 10%, so if your spouse is withholding much less than 10% this is a good indication that he is intentionally underwithholding. This may be so he can keep more income from the paycheck for himself and share less with you. He may count on being in the middle of a divorce by this time next year and not worry about the large tax bill because it will be a joint liability and a community debt.

No Prepayments. If your spouse is self-employed, or if there is income not subject to withholding such as interest and dividend income, the law is that he must make prepayments of estimated taxes. If he normally pays theses but lately skips his estimated tax prepayments, this may indicate he is hoarding cash in anticipation of divorce.

Reporting Less Income than Earned. If the return reflects a sudden and unexplained dip in your spouse’s reported income from prior years, be suspicious. Your spouse may be making more and keeping it from you and the IRS. A substantial underreporting of income (more than 25%) could trigger an investigation of the last six years of tax returns. Again, if you have been filing jointly, you may be individually liable for back taxes, penalties, fees and interest- even if your husband is the one who dishonestly reported.

Making Overblown Deductions. If your spouse is suddenly trying to take a large number of exaggerated deductions that are not legitimate, he may be trying to underpay his taxes. If he makes a substantial understatement of his tax, you may be liable for the resulting penalties and interest if and when the IRS catches it.

Intercepting the Refund. A more simple trick your spouse may try is to beat you to the mailbox and grab the refund check before you do. If you forget about the check he may sign your name on it and deposit the entire amount into his private account. Or he may be more subtle and deposit only a portion of the check into your joint account.

Just having any one of these red flags does not prove that your husband is thinking about divorce or that he is plotting against you in any way. You have to take the whole situation into account. Unfortunately, most people can’t spot these tax related warning signs just by looking at their tax return. That is why if you suspect your husband is cheating on your taxes and/or if he is thinking about a divorce, you should go to a tax professional and also to a divorce lawyer. A tax professional such as a Certified Public Accountant will be able to tell you if your taxes were filed correctly and what you can do to protect yourself from getting in trouble with the IRS. A divorce attorney will tell you what your legal rights regarding divorce are, and what the process will involve. You do not have to tell anyone that you have seen these professionals, but you have to protect your interests if a divorce and/or a tax audit is coming, and you have to have the knowledge these professionals can provide to make the right decisions.

For more FREE INFORMATION or to contact a family law attorney about a family law matter in Harris or Galveston counties, Texas, call toll free: 1-800-2MY-DIVORCE. (For cases in Harris or Galveston county only).

Tax Case: Failure to File Form May Subvert Divorce Agreement Regarding Child Tax Deduction

In many Texas divorces and Texas Suits Affecting the Parent-Child Relationship, an agreement is made between the parties regarding which party will have the right to claim a child as a dependent for tax deduction purposes. To make this agreement enforceable, the parties should execute an IRS form 8332. This form allocates the tax dependency in one or more years regardless of who would normally be able to take the deduction. A recent U.S. Tax Court case shows that failure to file this IRS form with your taxes may mean the IRS will deny the deduction even if you have an agreement with your former spouse.

In Chamberlain v. Commissioner, the U.S. Tax Court ruled that the former husband (taxpayer) was not entitled to the dependent deduction for one of his children because he didn't attach a valid IRS Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parents) to his 2003 Federal tax return (the child credit was also denied because it is premised on being entitled to the dependent deduction for the child). The Tax Court concluded that the attachment of a Post-It note referencing the initial (1995) Form 8332 didn't satisfy the statutory requirement of attaching a valid written declaration.

The taxpayer's former wife executed a Form 8332 in which she relinquished the dependency deduction for one of their two children beginning in 1995 and for all future years. The taxpayer claimed that he attached the original Form 8332 to his 1995 return, but that a subsequent fire destroyed all of his copies. The IRS was unable to provide a copy because their 1995 tax return information had been destroyed (pursuant to IRS document destruction policies).

This result may seem harsh, but as the Court indicated, "Although we are sympathetic with [taxpayer's] plight, we are bound by the wording of the statute as enacted and accompanying regulations when consistent therewith. "

Source: Family Law Taxation