Married Filing Separate -- Standard vs. Itemized Deductions

[JOFI]

Anyone aware of how you should handle a situation where a client is filing Married Filing Separate because their marriage is in an acrimonious collapse, the other spouse has already filed their returns, but refuses to tell my client whether they took the Standard Deduction or itemized their deductions?

How do I know whether my client is supposed to take the Standard Deduction or itemize if he has no idea how his spouse filed?

[IRonMaN]

Have they itemized in the past?  That's a good starting point.  If they have, is it reasonable that the other spouse would have had enough expenses to clear the standard deduction?  When in complete doubt, you could go the most conservative route to avoid any negative IRS notices down the road.

[dkh]

Would the spouse be willing to tell you?  Have client ask them to call you.

[BobKamman]

You have already figured out that standard deduction would be better for your client?

[JOFI]

This option has been pursued.  The spouse is entirely non cooperative.

[JOFI]

In this specific case, it is highly likely the spouse took the Standard Deduction, but the client doesn't know that for sure.

My question is how can my client protect himself if he does not know with certainty how spouse handled deductions?

[JOFI]

Where did I say that?  His spouse has already filed her returns.  He now needs to follow her lead, regardless of which option is preferable for him personally.  I am just trying to figure how to do that when the spouse refuses to divulge this information.

[Accountant-Man]

Do it the best way. Let the IRS tell you otherwise.

[BobKamman]

Where are you finding that he has to follow her lead?  Very much the gentleman, but wrong.  

[dkh]

Explain what you mean @BobKamman  because IRS rules are:  MFS - If you and your spouse file separate returns and one of you itemizes deductions, the other spouse can’t use the standard deduction and should also itemize deductions.

[IRonMaN]

I think Bob means, why does he have to do what she does.  Maybe she should have to do what he does.  First doesn't always mean right. 

[BobKamman]

I think you and IRS have already done a great job of explaining the rule.  And, at the same time why "first return wins" is just as absurd as "first to claim the child wins."

Anyone for an online game of paper, scissors and rock?  

[JOFI]

Unlike claiming a child, there is no right answer for the IRS here. They don't care if a MFS couple claims the SD or itemized, they just want the same treatment for both.

Unless you can tell me otherwise, it does appear that whoever files first establishes the default treatment.  And if the second spouse chooses differently, both spouses are in theoretical trouble with the IRS.

[IRonMaN]

"And if the second spouse chooses differently, both spouses are in theoretical trouble with the IRS"

Not trouble, it's just some more hoops to jump through by responding to IRS notices.  Just because one spouse jumps the gun and doesn't consult with the other doesn't make her God for the day.  It boils down to whether you want to take what is in the best interest of your client or what is the path of least resistance.

[BobKamman]

If one spouse itemizes the other must. 

If the first spouse to file itemizes, the second spouse must also itemize. 

If the first spouse to file claims the standard deduction, and the second spouse then itemizes, the first spouse must file an amended return to itemize. 

Itemized deductions are like a dominant gene.  If you have the brown hair gene, you're never going to be blonde.  At least, not without bleach.  

What's so difficult about that?  Dependents are first day of tax school.  Deductions are second day.  

[BobKamman]

Anniston, April 14, 1996 (Faux News) – Alabama tax preparer SteveJim Bannana was sentenced to four months in federal prison today for contempt of Congress. Bannana still claims innocence. “Congress should have enacted a first-to-file law over this itemized vs. standard issue. If they weren’t going to do it, I was.” His client, who paid several hundred dollars more to IRS than required, was not available for comment.

[rbynaker]

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@JOFI wrote:

Unlike claiming a child, there is no right answer for the IRS here. They don't care if a MFS couple claims the SD or itemized, they just want the same treatment for both.

Unless you can tell me otherwise, it does appear that whoever files first establishes the default treatment.  And if the second spouse chooses differently, both spouses are in theoretical trouble with the IRS.

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You have a fundamental misunderstanding of the rules.  There is no rule that both spouses must choose the same deduction method.  Have a look at IRC 63(c)(6):

In the case of—
(A)a married individual filing a separate return where either spouse itemizes deductions,
the standard deduction shall be zero.

So, as Bob alluded to, if your client is going to itemize then it's not relevant what the spouse does.  If your client is going to take the standard deduction, then your quandary is whether that's valued at $0 or whatever the MFS inflation adjusted amount is for the tax year (and if valued at $0 you might as well itemize.)

Rick

[BobKamman]

@rbynaker  I don't need no stinkin' Code section, it just confuses me when you say that the non-itemizing spouse can still claim standard deduction, it's just that it's zero.  That's a loophole, but it favors the gub'mint.  Unfair and likely unConstitutional.  

An interesting question would be whether the married taxpayer qualifies to file as head of household, and itemizes.  Does that mean the spouse must itemize also?  I had to look that up once, and I think the answer was no.  

[Terry53029]

I believe most of you are missing the point, and that is to do what's best for client. In this situation I have the client take the standard deduction (not zero), and see if he gets a letter from the irs. Over the years I've had several clients in this situation, and only a few have gotten a letter, then I have client itemize. I must admit that it is very hard to work with IRS the last couple years, so dealing with them is a pain.

[JOFI]

@rbynaker  Yes, so if one spouse itemizes, that means the other spouse would only have the option to take a Standard Deduction of $0.  In that case, the other spouse would have no choice but to itemize their deductions as well, even if their itemized deductions were less than the regular Standard Deduction for a MFS filing -- because it would still be greater than $0.  Which goes back to my original point -- in cases where couples file separately, both spouses must itemize their deductions, or both spouses must take the Standard Deduction.  

Thanks for making my point for me.  That you did it with breathtaking condescension when you clearly have no understanding of the situation makes it even better.

[JOFI]

@Terry53029  How is this advice any different from saying "Go ahead and cheat on your taxes and see if they get a letter from the IRS"?

[BobKamman]

@Terry53029  What seems to be best for the client in this case is to itemize, which is why I started out trying to determine if standard deduction was the better choice.  It wasn't, so there's no problem, unless after tax season you work as marriage counselor and want to try to patch up the relationship at least to the point they can both function as adults. 

[rbynaker]

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@JOFI wrote:

in cases where couples file separately, both spouses must itemize their deductions, or both spouses must take the Standard Deduction.

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The part you continue to get wrong is that no one is forced to take a standard deduction, only effectively barred from a standard deduction if the other spouse itemizes.  Getting back to Bob's point before you snapped at him for trying to help you, if your client wants to itemize, nothing is stopping you from itemizing and you can stop caring about anything else.

It sounds like you have inquired enough to at least have a reasonable guess that the spouse is not itemizing.  I would document why I believe that to be the case (asked these questions, got these answers, reviewed prior year returns, etc.) and take a full standard deduction if that is more beneficial.  If, instead, you believe the spouse will itemize, I would take IRonMaN's conservative approach and itemize.  It is the client's tax return so the decision starts with them but you're also signing under penalty of perjury to do what's best for the client . . . or however it's worded on the tax return.  So IMO you need to be comfortable with the position taken on the tax return before filing it.

Rick