Expert: Richard Stolp - 1/26/2011

Question
I am finishing up a divorce from a man who was self employed.  I was told that we never had any money and had to get a roommate to help make ends meet.  I was never told when taxes were filed, he just took all our forms, filed them, then I would receive a call to come down and sign.  When going through the divorce proceedings, I found out that I was still on one of his accounts (he told me years ago I was taken off of it so I got my own account).  When I went into the bank to fix this problem I found out I had access to the bank statements since I was still on it.  When I started going through them I was noticing that he was making A LOT more money than he said he was.  Once he gave me the previous tax records, I realized that his figures were WAY off.  I want to know what I can do to protect myself from his tax fraud.  I've heard there are such things as injured or innocent spouse but I need to know if there is something I can do now or do I have to wait and see if he gets busted by the IRS first. On that note, now that I know, do I have to report him?  Please help.  I am losing sleep because I don't know what to do.
   Thank you so much for any help you can give me.

Answer
Hi Jill,
First on your ex's income. Lots of self-employed people show much less taxable income because the self-employed have expenses. So, I wouldn't be worried unless you are receiving notices from the IRS. It usually takes the IRS 6-9 months to get out the first set of notices on that year. The notices for prior years, including 2009, should all be out now.  The spousal protection the IRS provides comes into play only if you owe or expect a refund from a joint return.

You didn't say if you owe or not. Assuming you do not owe: If you think your ex may have to pay penalties and interest for the 2010 return due this April 15th - I would file your return as soon as possible and file as Married Separate. Filing Married Separate means you are filing on just your income and will not have to sign a Married Joint tax return - signing a Joint return makes you liable for half of any penalties/interest/amount not paid for that year.

Finally, I would not turn your ex into the IRS for fraud unless you have a fair amount of paperwork to back up your claim - like details on his business expenses. And, remember you may be liable for any amounts that come from the old joint returns. If he had his returns done by a CPA or similar person I would assume the old returns are OK, even if your take based on bank statements is different.

Lastly, I would again suggest filing 2010 as Married Separate - he will have to pay more taxes because there will not be a joint return and you will not be liable for any tax related stuff from 2010. It's one way you can distance yourself from your ex right now.