Releasing Tax Docs of Divorcing Clients

I have a client that is going through a divorce. I have decided to work with the wife although they are filing a joint tax return for 2018. It is a very nasty divorce and she has already racked up over $100k in legal fees in the last 6 months. Her attorneys have been asking me for data such as the husband's W2, 1099, etc.. I told them that i cannot release any of his tax documents to them without his express consent.

They are asking why I can't release his 2017 W2 since it was part of their 2017 joint filing. I do not believe that I can release that although they can pull the data from the return directly as all they have to do is subtract out the wife's W2 wages to get his.

Just want to make sure I am correct in what I can and can not release to them as I do not want to get myself in trouble obviously. Can I release supporting documents related to a joint tax filing form prior years?

First problem: you stated that you have decided to work with wife and you are preparing a joint return. You just set yourself up for conflict of interest charges.

I don't know the answer to your specific question. The last divorcing couple I handled was also really nasty. I called my insurance company for guidance, and you might want to do the same. The professional concerns are obvious: how to prepare the joint returns (it took a couple of years to get through the divorce) and avoid conflict of issue exposure. The practical concern was that they both were spending a lot of time on the phone with me tearing each other apart. I didn't want to hear it. Insurance company attorney told me to make sure that all communications are equal and that they each know that there is no confidential communication between the three of us. So I explained that after each phone call with either one of them, I would be sending an email to both to document the conversation. The insurance company attorney liked that solution.

Ultimately, I retained the husband, but that was not formalized until after the final joint return was prepared. I think you have created exposure for yourself. My suggestion - touch base with your insurance company and ask them how to proceed.

ok thanks for the advice. I will do that.

You have really decided that you are working for both husband and wife if you plan on preparing a joint return for 2018 . (not just the wife). It strikes me that you are going to encounter difficulty and lack of cooperation in preparing an accurate return for 2018 .

After consulting with your insurance company, you may want to review your 2018 engagement letter and adjust it to ensure you are protected .

Can I release supporting documents related to a joint tax filing form prior years?

I take a rather simple and unobfuscated view. I don't get involved in family squabbles.

Clearly, one spouse wants documents and information to use against the other spouse and bolster their case. They come to the tax preparer because the other spouse refuses to share information. If you provide it then you have taken sides and become involved in the squabble.

A copy of the filed joint tax return can be provided to either spouse without issue. If they both want to sign a statement instructing you to release copies of other documents such as W-2 forms then there should be no problem. Failing that I would not provide copies of anything beyond the filed tax return.

Whatever I release is only to the client, not to attorneys or any other third party.

lucyko, I agree with the fact that I am working for both of them in relation to their 2018 tax filing. I do a lot of accounting work for the wife's business so I would like for her to remain my client in the future. I do not foresee filing their 2018 return to be an issue at all. The husband is fully cooperating with me on all tax matters related to that.

I did speak to my insurance company yesterday afternoon. Their attorney suggested that I get them both to sign a conflict of interest disclosure & waiver related to the joint 2018 tax filing. But also suggested that it might be best to get them to file separately so as not to worry about it. That might be the best way forward considering this appears that it will be a very messy divorce however the joint tax savings are fairly considerable with their situation.

Thanks for the advice.

I did speak to my insurance company yesterday afternoon. Their attorney suggested that I get them both to sign a conflict of interest disclosure & waiver related to the joint 2018 tax filing. But also suggested that it might be best to get them to file separately so as not to worry about it.

When one asks the E&O company what to do, they will invariably advise that which presents the least exposure to them, MFJ v. MFS tax savings notwithstanding.

The purpose of E&O insurance is to protect you in case something goes awry. The conflict of interest statements are a great idea, and combined with E&O insurance there should be nothing to worry about.

Wouldn't you think that suggesting filing MFS would be its own liability risk if that raised the total tax liability over MFJ?

I agree with JAD's point. The decision whether to file MFJ or MFS belongs to the clients, not the tax preparer, and certainly not the preparer's insurer.

the joint tax savings are fairly considerable
I do not foresee filing their 2018 return to be an issue at all.

Send a letter to all four parties. Communicate the expected savings to MFJ, let them know you will return original documents to the respective spouses as well as a copy of the tax return to each. Any documents the attorney's need can be requested from the parties.

The wife can get a return transcript from IRS using Form 4506-T. Take that and whatever on it is not hers must be his.