Audited by the IRS. Advice and Opinions Needed

In My Humble Opinion
1

We just got a certified letter in the mail that is addressed to my husband and his ex-wife. Now, this sent a shiver up my spine for 2 reasons. 1) It was from the IRS, and 2) we had finally succeeded in pretty much getting the ex out of our lives. She didn’t have our address or phone number. She hadn’t called us in over a year. We were joyous.

Anyway, the letter states that they are being audited for 2001. Apparently his ex cashed in her 401k that year and never put it on their tax return. The amount owed is not huge, a little more than $600, and we can afford to pay it all if we have to. However, if there is any way to hold the ex responsible for her half then of course we would like to do so.

Here’s the tricky part. My husband called the number on the letter and spoke to some guy at the IRS. This guy says that these are our options.
[ul]
[li] Both parties sign stating that they agree with the IRS’s findings and they will pay the amount due. In 90 days, the IRS sends a bill for half to each party.[/li][li] Both parties sign stating that they disagree with the IRS’s findings and then they re-file with new information that proves they don’t have to pay. The IRS evaluates the newly filed claim and decides whether or not they have to pay.[/li][li] Neither party signs, we just wait 90 days. The IRS issues a bill to both parties for the full amount.[/li][li] Neither party signs, but someone sends the full amount due to the IRS. In 90 days the IRS re-evaluates the case and sees that it was paid in full they close the audit. However, if BOTH parties pay the full amount, a refund check will be issued in both their names.[/li][/ul]

Now this guy that my husband spoke to at the IRS did not seem like the sharpest tool in the box. He didn’t know what would happen if my husband signed and sent a check for half without her signature, but I’m guessing they would just send a bill to both parties for the remainder and we’d end up paying it anyhow. The guy also claimed not to know how the interest was accrued. I don’t want to wait 90 days and have it wind up being another hundred bucks or more.

We already know that his ex-wife’s financial situation is crap. She has horrible credit and probably doesn’t care if the IRS makes it worse. She knows that we have spent the last year and a half cleaning up our credit and trying to get out of debt. I’m pretty sure she’s aware that we can afford to pay the full amount.

So my husband calls her and she of course refuses to sign anything. She claims that she already paid the taxes on that 401k when she cashed it in and doesn’t owe the IRS anything. In fact, she says the IRS owes her a $1000 refund!. She wants to re-file the paperwork herself. Of course, my husband refuses to sign anything she puts together. He tries to explain to her that what she probably paid that year were penalties to the investment company and taxes are a different thing. She rants and raves and calls him a freak and an idiot. :rolleyes: He tries to compromise. He says they can re-file, but they will use a CPA or tax service to do the paperwork and share the cost of that as well. She refuses and rants some more. He hangs up having resolved nothing and now she has our phone number, as well as our address (which the IRS kindly provided to her on her copy of the letter.) Related rant coming soon to a Pit near you.

So, my questions to the teeming millions (especially anyone who knows about taxes):
[ul]
[li] Is there ANY way that we can make her responsible for her half with out her signature?[/li][li] Should we just suck it up and pay the full amount?[/li][li] Can a CPA help us without the ex-wife’s cooperation? I tried calling around, and the fee is somewhere around $130 an hour for this kind of thing. I don’t think it’s worth it to pay that fee on top of the full amount, but I might pay it if I knew he could make the ex responsible for her amount.[/li][li] Does anyone know how the interest works on this? There is a sheet with the letter that shows how the interest was charged on the original amount, and it makes absolutely no sense to me…so it may be hopeless to try to explain it, but you could always try. :D[/li][li] Any general advice anyone has would be welcome.[/li][/ul]

I’m not sure if this would have been better suited for GQ or not, but since I am seeking opinions as well, I thought I’d put it here in IMHO. If a mod wants to move it, please do so!

Oh, I’ve already told my husband he’s a :wally for filing jointly with her that year and letting her do the paperwork. He agrees.

2

I know nothing about the Australian tax system, let alone the IRS, but I understand the shiver you get up your spine when you see the word “audit”.

Let me ask you something. Is $600 worth the grief, stress, pain and general unhappiness caused by dealing with this evil harpy? Personally, I would pay the $600 just to get this twit out of my life.

Max.

3

We’ve come to pretty much the same conclusion. Just pay and get it over with. However, it just pisses me off to pay her share. :mad: I know she is counting on us paying it, and it irritates me like crazy. Especially since it was her 401k, she cashed it in without telling him in the first place, he never saw a dime of the money from it, and she filled out the stupid tax return. Granted, he’s the doofus who signed the return and trusted that she had done it correctly, but if there is any way at all to make her pay, then I want to know about it before we send in our check. Yes, it’s partly vindictiveness on my part. I can’t stand her and I want her to pay! Grrrrrrrrrrrrrr.

We’ve already pretty much given up though. The SDMB was my last shot at coming up with a way to make her pay. sigh I’ll just have to grit my teeth, write a check, and hope that someday someone will screw her over for the same amount she’s getting from us.

4

If the IRS will seize the refund of either party next year, perhaps your husband could just get an extension and file his (and your?) return late, letting her refund get taken first.

Just an idea.

5

See, I knew someone would have ideas that I didn’t come up with before. Thanks Ca3799!

Of course, I’m probably to skittish to actually do that. I mean, what if she doesn’t get a refund this year? Will they wait for us to file ours, or tack it on to what she has to pay? What about interest? If we wait another 8 or 9 months and then wind up paying the whole amount, how much more will it be? Ugh.

But it’s such a nice, plan. I am going to bring it up with hubby and consider it. I would love, love, love for her to end up paying the full amount. :smiley:

6

Don’t know whether anyone at IRS gave you information about Innocent Spouse Relief (PDF file). It sounds from what you said in the OP like this might apply in your husband’s case. At least, it’s worth taking a few minutes to check it out.

You have my sympathies in having to deal with the IRS. I got a little behind in my tax paperwork and ended up having to file four years’ of returns last year. It didn’t help that I kept getting conflicting info about how to handle having a wife who was no longer capable of signing the joint returns.

7

Thank you LurkMeister. We’ve called the IRS 3 times already, and this is the first I’ve heard of it. Of course, I’m not all that impressed by the people who answer the phone at the IRS anyway.

We will definitely look into this, because he may qualify. He did know that she cashed in her 401k that year, but she led him to believe that she had payed the taxes on it already…she still believes she did pay them. shrug It’s worth a shot anyway.

8

The people who answer the phone for IRS are usually seasonal and just have the “blue book” in front of them to answer questions. You can order this yourself, so they usually can’t answer any questions you could just look up yourself.

The interest runs from April 15th of the year it was due, that’s since April 2002. There is also a “failure to pay” penalty, which used to be pretty hefty. I don’t know what it is now. It used to run up to 25%.

When you file a joint return unfortunately you are both equally liable for all the tax, like a partnership.

The ex may be remembering that they took out withholding when she cashed in the 401K, but is forgetting that that went to pay part of your tax liability. Take a look at your copy of the return and you should see the 20% they took out added to the withholding on your W-2S. Plus of course there is in addition a penalty of 10% if she was under 59 1/2.

If you have the money I would just pay it rather than waiting for it to be taken from your refund, or hers. It’s only going to get bigger. The hassle of applying for innocent spouse isn’t worth it. I know you are mad about the unfairness of it all, but it’s a small price to pay to keep her out of your life, isn’t it?

Also, IRS will file a general lien which will cover any assets you and ex have now and forever more. shows up on credit reports and is filed at the court house. Can be a pain if you want to get a mortgage because it has to be released first and in that case you would have to pay the tax, plue interest and penalty. To avoid having it filed, you have to pay within the time period they give you.

Also, but not probably, they “could” technically garnish your wages or your bank account, if they know where it is. they only do this if you ignore requests for payment.

9

As I alluded to in my post, last year I finally filed my 1999 tax return. There was actually no tax due, but the IRS had estimated that I owed several thousand in back taxes, interest & penalties because they assumed I was filing singly instead of jointly and did not consider several deductions. To the best of my recollection they sent several requests for payment before even threatening to garnish my wages or freeze my bank accounts (which is what finally got me off my butt to finish my paperwork). Of course, with every statement they sent the interest went up, but when I finally filed the return I got a final statement verifying that my taxes had been properly paid prior to 4/15/00, and all the interest and penalties previously assessed were dropped. Then they paid me the refund I was due for 2002, which had been held to reduce the presumed bck tax due.

10

I can’t say this enough.

Contact a tax accountant or attorney. Get a quicky consultation.

You do NOT want to go into this without a champion. And that’s what these folks are paid to do.

11

I appreciate your advice Jonathan Chance, but the cost of a tax accountant or attorney is so much that it just wouldn’t be worth it, especially if we ended up paying the full amount anyway. I did call around and even for just a consultation the fee was $100 or more an hour.

12

Crappy and unfair as it is, I’d pay it in full. Chances are she doesn’t have the money. That probably means it’s ultimately your husband’s debt because he was married to her. Yes, you could get an attorney, but at $150-200/hour, you couldn’t get a letter written without damn near exceeding what the IRS is trying to claim.

Sounds like she is bad new and has harrassed you in the past. People like her LIVE for a fight and love to cause calamity whenever they can. Don’t give her another reason to re-enter your life. Pay the $600 and chalk it up as one more reason you’re glad to be rid of her. And then change your phone number.

13

And, if possible, your address. This is why Post Office boxes were invented. Good luck.