So we got a letter today stating she owes almost $4k to the IRS for her 2015 tax return. The difference stated is $13,000 in the form of 1099-MISC from her at-the-time husband (he was paying her rent bill for 1 year under their informal agreement).
I have called around and everybody I've talked to including the representative at the IRS has agreed he probably shouldn't have issued a 1099, and in fact for most of the money which he paid directly to the rental company he just needs to pay taxes on. But nobody can say for sure. No tax accountants want to take this on because the deadline is March 29 and they're all busy with tax season. They all referred me to tax lawyers and I have called several of them but as soon as they heard that the amount owed was "only" $4k they suddenly changed to "well I'll have somebody call you back in the next hour". Nobody called me back, so I'm assuming that was their way of brushing me off.
The problem is also that it really makes no sense to hire a lawyer if they're going to end up charging more than the $4k, and I can't imagine any lawyers are going to end up being cheaper than that. So it's in my best interest to try to fight this myself, I think, and then if it doesn't work out, just pay the $4k and wash my hands of it.
Backstory
They married some years back. He had a business and she helped him with it, but didn't claim an income for several years. In 2014, they split up (no legal paperwork, they just ended their relationship), and at the end of 2014 she moved out with the agreement between them that he would pay for her rent ($605/mo) for 1 year while she worked, built up savings, got on her feet. This was an informal agreement, not court-structured alimony. The majority of times he would just have a cashier's check issued direct to the rental company, occasionally he would give her cash and she would purchase a money order (the rental company didn't accept personal check or cash). Neither of them kept receipts. Maybe 4 times, he gave her a couple hundred dollars extra for helping him out for stuff like watching his dogs while he went on vacation, etc.
So 2015 goes by and she's working and paying her taxes as though she's going to file Married Filing Separately. They both keep talking about formal divorce but one would drag their feet and then the other would. Not my business. She lets him know several times that her intention is to file Married Filing Separately. 2015 ends, W2s come in, and he wants to file Married Filing Jointly to reduce his tax burden. He is notoriously bad at filing on time and tends to always owe a huge amount with penalties. She offers an olive branch and says she will do it if he can meet the regular April 15 deadline. The deadline comes and he hasn't submitted yet so she files Married Filing Separately.
Fast forward to December 2016, they finally complete their divorce. In the divorce settlement they outline that the assets have already been fully divided (she didn't really take anything to speak of, just her clothes and dog and car). The divorce was undisputed and very straight-forward.
My question is, is there any circumstance where 1099 was the correct way for him to try to deduct these moneys or claim it as money paid to her? As best I can tell, these are just voluntary payments made within the marriage according to the IRS. But I can't find anything definitive.
I'm writing up a dispute letter to send back to the IRS with all the facts, but I'm not sure if they're going to sift through the details and tell me what's what, or just tell me that I need to hire a lawyer to figure it out.
Looking at this from a purely financial perspective, if it ends up costing more than $4k to have a lawyer do all this, it almost surely makes more sense to just amend her 2015 taxes and pay it. Any reason this is a bad plan? I just don't want to spend $6k to save $4k, it seems pointless.
Submitted March 03, 2017 at 10:18AM by lol_admins_are_dumb http://ift.tt/2lmgxC3
