Community Property for married filing seperate

Technical topics regarding tax preparation.
#1
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I represent a husband filing MFS in California (a community property state). He doesn't have his wife's information and wants to just file how he has in the past which is just to include his total income on the 1040 and nothing allocated from his wife. They are both in the same tax bracket.

In the past neither has filed Form 8958.

How to deal with this if he is adamant about filing MFS with just his income?

Essentially the tax liability between the two of them is the same, it's just not being allocated correctly between the two of them.
 

#2
WEISSEA  
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See Pub 555
Community property laws may not apply to an item of community income that you received but did not treat as community income. You are responsible for reporting all of that income item if: 1. You treat the item as if only you are entitled to the income, and 2. You do not notify your spouse of the nature and amount of the income by the due date for filing the return (including extensions).
 

#3
EZTAX  
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Agree with the above. Do they live together?
 

#4
Frankly  
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DThomasCPAEsq wrote:How to deal with this if he is adamant about filing MFS with just his income?

That would be an incorrect tax treatment.

In California, community status ends when they physically separate. Income earned after that point is separate income.

See FTB pub 1051A.
 

#5
Joan TB  
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MFS returns are tricky. I live in a community property state, so don't see this very often. Usually it is when the spouses keep their finances totally separate and have separate bank accounts. They just don't want to share (which I find weird for a married couple, but it is what it is.) When the one TP can't get the info from the spouse, I feel that filing the separate return is better than filing no return at all. At times, it is the only option you have...lesser of two evils and all that.

I actually had a guy who got caught in that trap. Hadn't filed for YEARS because his wife would never get her info together - Sch C business. Finally got him current with MFS returns, but it cost him greatly in late filing penalties. I don't know what happened about her income, but I believe they are still married.
 

#6
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I've told him he could put together a post-nuptial agreement that defines their community and separate property/income if he wants to continue filing separately.

I tend to agree with JoanTB - if he doesn't have her information, he's better off filing at least his return with his income. I've disclosed all of this to him and documented as much. Just wondering if I turn him away as a client or do the best I can with the information available.
 

#7
Frankly  
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It's rather difficult to provide information one does not have. FTB seems to recognize the problem as well. However, I have observed that some clients have the idea that "separate" means they don't have to make any effort to get the needed info from the spouse. I will inform them of the FTB rules and mention the possibility of an FTB inquiry letter down the line. Sometimes the client then comes up with the info without any trouble.
 

#8
JAD  
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My understanding is that without a legal document, the income is community and if they file separate, they have to split all items of income, deduction, and withholding equally.

I have a client who has a prenup and files MFS. Yes, the IRS wants that form. Therefore, we cannot e-file. We include a statement that says that the taxpayer's return reflects her separate income and deductions per the prenup and that she does not have access to her husband's data.
 

#9
Chris R  
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I'm in CA and my clients got married last year and do not currently have any legal agreement to separate income and deductions but they want to file MFS because he is in a legal battle with an ex wife for alimony. Can they now, before we file, have a legal agreement written up to file this way or does that agreement need to be in place before the year occurred and the monies earned? They do have access to each others data.
 

#10
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Thanks all. I'll try to convince him to get his wife's income information, beyond that I'll warn him of the potential inquiries from FTB and IRS, then I'll file with his available information.
 

#11
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Chris R wrote:I'm in CA and my clients got married last year and do not currently have any legal agreement to separate income and deductions but they want to file MFS because he is in a legal battle with an ex wife for alimony. Can they now, before we file, have a legal agreement written up to file this way or does that agreement need to be in place before the year occurred and the monies earned? They do have access to each others data.



I can't find any guidance directly on point, however, I think it would be fine to put it in place during the tax year. I've seen a separation agreement to similar effect and treated it as effective for the tax year during which the separation started. Generally, I think those agreements are to simplify things and move things forward for the couple. If it is done solely to evade taxes then that may be a different story.
 


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