360° Coverage : Post Divorce Tax Intimacy Can Be Riskier Than Post Divorce Sex

2 Updates
Post Divorce Tax Intimacy Can Be Riskier Than Post Divorce Sex
Photo Credit: Forbes Business

Post Divorce Tax Intimacy Can Be Riskier Than Post Divorce Sex

Jan 7 2014, 4:29am CST | by

Post-divorce intimacy between exes seems to be something of a controversial topic among therapists and the like.  In Psychology Today Pamela Cytrynbaum wrote about the various forms that post...

Filed under: news

 
 
 

34 weeks ago

Post Divorce Tax Intimacy Can Be Riskier Than Post Divorce Sex

Jan 7 2014, 4:29am CST | by

Post-divorce intimacy between exes seems to be something of a controversial topic among therapists and the like.  In Psychology Today Pamela Cytrynbaum wrote about the various forms that post marital sex can take, finishing with the caution:

No matter how, why, when and where you’re doing it with your ex, my advice: Keep your eyes wide open.

Post divorce sex between exes has an interesting titillating aura about it, but there is a bit of financial intimacy that is more or less taken for granted.That would be a joint tax return for the final year of the marriage.  It might even be arranged, even prepared, by the half of the couple that had always tended  to it.  I would suggest that, in many circumstances this might be an even worse idea than a post-marital roll in the hay.

Tax Court decisions to illustrate the hazards of post-marital tax entanglement are numerous, but the most recent is something of a standout.   I should mention at the outset that the Tax Court believed the version of events laid out by Anthony W Roberts.  His ex-spouse had a different version, which the Tax Court did not believe.  I’m just a tax blogger, not an investigative reporter, so I am telling you the story as the Tax Court told it without any independent verification.

Mr. Roberts married Cristie Smith in 1990.  They separated for a period in 2008, permanently separated in January 2009 and were divorced in March 2010.  They maintained two checking accounts, one with Washington Mutual (WM) and the other with Harrborstone Federal Credit Union (HS) .  Although both accounts were joint, they operated them on a his and hers basis, with Mr. Roberts doing everything through the HS account and Ms. Smith doing everything through the WM account.  Mr. Roberts never saw the WM statements.  Mr. Roberts gave his tax information to Ms. Smith in early 2009, expecting that she would file a joint return as had been their custom.

As it turned out, Ms. Smith did not file a joint return with Mr. Roberts.  She did her own return, apparently accurately, married filing separately.  She filed Mr. Roberts as single lowered his wage income by $3,000, increased his withholding by $3,000 and had the resulting $3,357 refund electronically deposited in the WM account (i.e. “her account”).

There was something even more significant that Ms. Smith left off Mr. Roberts return, something that she had not informed him about. In late 2008, she had arranged to have ING issue to checks totaling $37,020 which she deposited into the WM account. ING issued the accounts from Mr. Roberts IRA.  According to the Tax Court findings Ms. Smith used the funds to set up her postseparation household, take a vacation and family trip and pay expenses for which she was liable.

What A Mess

When Mr. Roberts received a 1099-R from ING, he thought at first that he was a theft victim.  Eventually he found out what happened.  The IRA money that Ms. Smith had availed herself us was taken into account in the final divorce property settlement in 2010.

The IRS position was that ING made checks out to Mr. Roberts and they were deposited into a joint account.  He picks up $37,020 in 2008.  End of story.  The Service noted that taxpayers in similar circumstances were allowed to replenish IRA funds that had been diverted citing PLR 20119040 (Lew Taishoff commented on the oddity of the Service using a Private Letter Ruling as authority.)  Mr. Roberts had not done that.  The Service noted that Mr. Roberts ended up getting credit for the IRA distribution in the final settlement.

Mr. Roberts Mostly Wins Kind Of Sort Of Probably

Since Mr. Roberts did not disclaim the return that Ms. Smith filed for him nor file one of his own, he was stuck with the deficiency from the W-2 and filing status misstatement and any resulting penalty.  The Tax Court did not find it reasonable of him to rely on Ms. Smith.  Yah think?

The IRA distribution was a different story.  The theories that the IRS put forth were arguments that support him being taxable on the distribution in 2009 or 2010.  There was no reasonable basis for taxing him in 2008.  That puts a bit of a cloud over Mr. Roberts victory parade, since, counting on my fingers, I come up with 2010 still being an open year.  I’m betting the Service does not go after him for 2010.  If they did and he won, they may have created a roadmap for conspiratorial divorcing couples to bail money out of IRAs tax-free.  Frankly, I would caution you to not try this at home or at all.

The Lesson

When you get divorced, you need to accept that bad as the relationship may have been, there were probably many of your needs that were being met through it.  Likewise, low as their opinion may have become of you, you were probably meeting some of your spouses needs.  There may be some things that you cannot disentangle, but you probably should disentangle as many as you can.  That’s the point of getting divorced.  Tax compliance is one that is relatively easy to disentangle and it can cause you a lot of trouble if you don’t.

If you have always hired somebody to do your return, one of you should probably hire somebody else.  My experience is that many preparers don’t think of couples as two clients.  Also many preparers are not sensitive to the implications of joint and several liability and encourage joint filing when it is inappropriate.  Divorce attorneys and even probate judges seem to make the same mistake sometimes ordering recalcitrant spouses to sign joint returns.

As far as having your ex prepare your return or preparing your ex’s return, it seems like a really bad idea, although the only instance of it I know of seems to be working out OK.  My covivant is such a good preparer and already does so many other free returns, that I persuaded her to do my return the last rather than have to learn new software myself.  So for 2012, there is a Drake software account with nine returns – Me. CV, her five adult children, her ex-husband and her ex-brother-in-law.  I guess there is an exception to every rule./>/>

You can follow me on twitter @peterreillycpa.

Afternote

The new small tax practice I am involved in will be a Pro fx outfit, so I will be back to doing my own return.  I am really enjoying actually doing some work after decades of the regional national/obsession with “pushing work down” and the “leverage model”.

Source: Forbes Business

 
Update
2

3 days ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (Ne ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

4 days ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double trag ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

US doctor tests positive for Ebola in Liberia
Washington, Sep 3 (IANS) An American missionary doctor working in Liberia has tested positive for the Ebola virus, his organisation SIM USA announced Tuesday.
 
 
IS video shows beheading of second US journalist
Washington, Sep 2 (IANS) Days after the beheading of American photojournalist James Foley, Sunni militant group Islamic State (IS) has posted a video showing the beheading of another kidnapped American journalist Steven Sotloff, CNN reported.
 
 
IS beheads second US journalist
Washington, Sep 2 (IANS) The Islamic State militant organisation has posted a video titled "A second message to America", showing the beheading of American journalist Steven Sotloff, CNN reported.
 
 
India offers red carpet, not red tape, Modi hard sells India (Roundup)
Tokyo, Sep 2 (IANS) Prime Minister Narendra Modi Tuesday hard sold India to Japanese investors saying that his country offers only a red carpet and not red tape while dubbing his five-day trip to Japan that ends Wednesday as "very successful".
 
 
 

Latest from the Network

Over 7,200 killed in Syria in August
Cairo, Sep 3 (IANS/EFE) As many as 7,219 people have been killed in Syria in August as fierce fighting continued due to the three-year-old civil war in the country, the Syrian Observatory for Human Rights said Tuesday...
Read more on Politics Balla
 
US doctor tests positive for Ebola in Liberia
Washington, Sep 3 (IANS) An American missionary doctor working in Liberia has tested positive for the Ebola virus, his organisation SIM USA announced Tuesday. The doctor was treating obstetrics patients at ELWA...
Read more on Business Balla
 
Anastacia slams Kim, Kanye
Los Angeles, Sep 3 (IANS) Singer Anastacia slams reality TV star Kim Kardashian and her husband Kanye West saying their need for attention is just so ill placed. The 45-year-old hit out at the star couple for having...
Read more on Celebrity Balla
 
EU to decide on new sanctions on Russia
Brussels, Sep 3 (IANS) The incoming European Union (EU) foreign policy chief Federica Mogherini Tuesday said the EU leaders will decide on new sanctions on Russia by Friday. "The package (of further sanctions) will be...
Read more on Politics Balla
 
Israel 'stands by' new land appropriation in West Bank
Jerusalem, Sep 3 (IANS) Israeli Foreign Minister Avigdor Lieberman Tuesday said his country "stands by its decision" to appropriate 1,000 acre land in the West Bank. "Gush Etzion settlement bloc reflects a wide...
Read more on Politics Balla
 
Jolie's wedding dress featured her kids' drawings
Los Angeles, Sep 3 (IANS) Actress Angelina Jolie walked down the aisle in a wedding gown with various coloured illustrations drawn by her children. She married actor Brad Pitt Aug 23 in France and on her wedding day,...
Read more on Celebrity Balla
 
UN chief welcomes lifting of Iraqi town siege
United Nations, Sep 3 (IANS) UN Secretary-General Ban Ki-moon Tuesday welcomed the end of militant siege on the northern Iraqi town of Amerli, saying it averted "a major humanitarian disaster". Ban welcomed the...
Read more on Politics Balla
 
Second beheading plunges Obama into top crisis
Washington, Sep 3 (IANS) Just two weeks after beheading American photojournalist James Foley, the Islamic State (IS) Sunni extremist organisation sent what it called "A second message to America", with a video showing...
Read more on Politics Balla
 
11 killed in Pakistan building collapse
Islamabad, Sep 2 (IANS) At least 11 people, including women and children, were killed Tuesday when a roof of an old building collapsed in Pakistan, a media report said. As many as 18 people were wounded when a two-...
Read more on Politics Balla
 
Imran refuses to budge as parliament supports Pakistan PM (Roundup)
Islamabad, Sep 2 (IANS) Pakistan Tehreek-e-Insaf (PTI) chairman Imran Khan refused to budge on his demand for Prime Minister Nawaz Sharif's resignation Tuesday as a joint session of parliament came out overwhelmingly...
Read more on Politics Balla