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Dear Tax Talk,
My sister and her husband have been married since 2003 and have a 3-year-old. This year they used a new tax agent who claims to be a former auditor for the IRS. My sister boasted of her $7,000 refund that she received.
Upon examining her forms, I discovered that the agent filed her husband as single and claimed mortgage interest and property taxes against his income, among the other deductions they had. He filed my sister as head of household with my niece as her dependent and took the standard head of household deduction for her.
Is this legal since they live together? Up until this year, they have been filing as married filing jointly. What will happen if she chooses to change her status to married next year? Can the IRS, at some point in the future, force them to amend their 2007 filings to force them to pay more in taxes (and penalties and interest)?
-- Nancy
Dear Nancy,
Whether or not the preparer is a former IRS agent, he's still a scam artist. Your sister must know that what the preparer and she did was wrong. The preparer probably charged steep fees to get the refund.
Unfortunately, he is not the one on the hook should the IRS examine her tax return. In fact, she'll be left owing the IRS the back taxes, interest and possibly penalties if her return is selected for examination. An examination of the return is the only way that she would be "forced" by the IRS to come clean. She may want to consider filing corrected returns and paying the taxes that she owed to avoid this possibility.
While the chances of a random audit are slim, the IRS does flag unscrupulous preparers. When this happens, their unfortunate clients get caught up in the mess. While there's really no good advice when something like this occurs, I suggest that she think twice about continuing to file as unmarried when in fact she is married.
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