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Question number 43 of the Frequently Asked Questions was posted on the IRS website on June 24 only 6 days before the filing deadline for the Foreign Bank Account Report (FBAR). The answer states that a person who only recently learned of his or her obligation to file a FBAR and had insufficient time to file on time should file the report late but before September 23. These late reports should be filed and a copy sent to the Philadelphia Offshore ID Unit with an explanation of why the report is late. IRS will not impose penalties if the above conditions are satisfied. The above rule is for those having only signature authority over an account but no beneficial interest or those with an interest who properly reported the income earned on the account for 2008.

The above rule would seem inapplicable to taxpayers who have filed FBARs in prior years but have mistakenly waited to file the 2008 report at the same time as their extended Form 1040. These returns should be filed with the Detroit address in the FBAR instructions and no copy sent to Philadelphia. It would be wise to attach an explanation as to why the report is being filed late, however.

Most importantly, those who have not reported income on foreign accounts have until September 23 to come in from the cold and participate in the current IRS voluntary disclosure program. After September 23, IRS will re-evaluate the program and if participation is permitted the toll charge for entry in the form of civil penalties will likely rise substantially.

The Department of Justice has announced an agreement in principal with UBS over name disclosure dispute. Those with undisclosed foreign accounts, especially present or former UBS account owners, who have not yet come forward would be wise to step up to the plate now.


Taxpayers who file a joint return are jointly and severally liable for the tax shown on the return or the additional tax determined after an audit of the return. There is an escape hatch from joint liability however, for the so called “innocent spouse” under three separate provisions of the tax law. Generally, one must assert the defense within two years of having first received from IRS a collection notice threatening action and spelling out your right to assert innocent spouse status. The notice is sufficient if sent to ones last address known to IRS whether or not it actually received. If one has not filed IRS Form 8822, Change of Address, or filed a tax return using a new address, a notice mailed to the former marital residence accepted by a former spouse is sufficient although the former spouse fails to inform the addressee spouse of having received the notice.

The Tax Court recently held in Mannella v. Commisioner that the two year time limit for raising an innocent spouse defense does not apply to the prong of the tax law under which a spouse is seeking equitable relief from an unpaid tax liability shown on a joint tax return (Section 6015(f) of the IRC). In so holding the Tax Court invalidated a tax regulation promulgated by the IRS. The ruling technically applies only to taxpayers whose cases would be appealable to the Third Circuit Court of Appeals.

The important lesson to be learned from this case is that one should file Form 8822, Change of Address, an not hope the Tax Court will invalidate an IRS regulation to rescue you from not having received an important IRS notice affording you certain due process rights.

Innocent Spouse Relief may be claimed by filing Form 8857. This is a legal form involving statute of limitations implications and binding choices of remedies and litigation forums which should be completed by a tax lawyer. If the request is denied one may petition the U.S. Tax Court for review of the denial or one may assert the defense in a Tax Court petition involving other tax issues as well. Request a copy of my authored article “Three at Bats against Joint and Several Tax Liability: (1) Innocent Spouse (2) The Election to Limit Liability, and (3) Equitable Relief” appeared in The Journal of the American Academy of Matrimonial Lawyers (Vol. 17, No. 2 (2001).


For 2008 and prior years a non-custodial parent could claim a dependency exemption for a child by with Form 1040 a signed Form 8332, or statement containing the substantially the same content as the form signed by the custodial parent. The non-custodial parent can also attach a copy of the divorce decree of marital settlement agreement which unconditionally states that he or she is to have the exemption. Decrees or agreements making the exemption conditional on paying child support are not acceptable.

Beginning with 2009 filings, the use of an unconditional divorce decree or marital settlement agreement is no longer permitted by the tax regulations. The best practice is to obtain in advance from the custodial parent a signed Form 8332 for each child and each year that the non-custodial parent is to have the exemption. It is a good idea to bring a supply of these forms to the mediation or settlement conference. If the case is tried the final judgment should require the custodial parent to sign the required forms for each child and for each year of transfer of the exemption. The completed forms should then be promptly sent to opposing counsel with instructions to have his or her client sign and return the executed forms. I would not leave this to the spouses to accomplish on their own.


The American Jobs Creation Act of 2004 amended that tax law relating to S Corporation losses. Previously, unused S Corp losses in excess of a shareholder’s tax basis in the corporation could be carried over indefinitely but could not be transferred to a former spouse or anyone else for that matter. The 2004 law changed that rule permitting a former spouse who is transferred stock in an S Corporation under tax law section 1041(a) to acquire the unused losses as well. The magic is accomplished by creating a fiction that the losses are incurred in the year following the transfer of shares. The IRS has recently published proposed regulations under tax law section 1366(d) (1) to explain and implement this new rule. Proposed regulations usually become final after a comment period but are sometimes withdrawn or changed in final form as a result of the comments received.


The IRS never sends uninvited notices to taxpayers by e-mail. If you receive an e-mail notice from IRS it is a scam. The notice may state that you have a large refund due or may request identification information from you or state some other reason to obtain your personal identification information. Do not under any circumstances respond to these notices. You will be burned big time. If you have doubts call or e-mail me and I’ll be happy to advise you without charge.

© 2009 by Robert S. Steinberg, Esquire, Miami Florida
Articles and consultations authored by attorney reflect the state of law as of the date of their writing. The laws change daily. Users of this site are advised to consult attorney regarding their situation.
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