Newly Married--Wife previously broke tax laws in same year

[RobertG]

What is the name of your state? Florida

My wife and I got married in July, 2006. Now that it is time for taxes, I have found out that my wife gave a friend her SSN to work (her friend is an illegal). My wife is foreign and honestly did not understand the implications of such an act. (she thought she was doing good by paying taxes and also helping a friend--I explained to her that the government does not see it that way AT ALL). In addition, I have found out that the employer will be issuing a 1099 for the income, which I estimate is around $31,000. (the 1099 will be in my wife's name). Incidentally, this "employer" will not be able to get us the 1099 until at least February--which is past the due date (is there anything I can do about this?)

Aside from the obvious, (I was furious when she told me what she did--she seriously almost earned herself a divorce), we are now liable for taxes on that amount, and probably would have had to be making monthly tax deposits. The taxes owed plus the penalties are not going to be good. She says her "friend" will pay us, but I am not holding my breath. If I'm doing my math right, it will be a rather substantial sum of money owed--money that we cannot afford.

In an attempt to protect myself from her illegal activities, it may be best for us to file separately this year. In addition, does "Innocent Spouse Relief" as defined in Publication 971 provide me any protection? I am also a small business owner (paid as an employee, only), but the business is a Class C Corp, with it's own 1120 returns, so I do not believe that is relevant.

Any information would be GREATLY appreciated.

[abezon]

Married separate is a serious possibility. Not only did your wife knowingly help another person commit immigration fraud, neither you nor she has any idea if the person she helped decided to share that SSN with *her* friends. Never mind the IRS -- they can be bought off with money. I'd be worried about Homeland Security & deportation. Plus, if she wants to apply for citizenship, this will probably prevent her from getting it.

The IRS has procedures to deal with identity fraud. Keep very good records of all income so you can prove what she did & did not earn. Unfortunately, once a SSN is floating around in the illegal aliens community, it tends to get used by multiple people, so this is something you may have to deal with for years. Watch your credit reports too. You might want to put a fraud alert on them to prevent someone from buying a car under her name & sticking you with the loan.

Also, make the friend file her return with a Form W-7 ITIN application & a 'corrected' 1099-MISC. She can strike through the name, address & SSN & write in her name, address & "applied." (Threaten to turn her in to Homeland Security if she doesn't comply.) The IRS will then process the return as a separate person's income. The friend should not attempt to claim EIC under any circumstances. She can also give the ITIN to her boss so he can correct his records. BTW, I suspect this boss knows darned well the worker is illegal. That's one of the reasons so many illegals get paid as independent contractors -- no requirement that the employer verify SSNs.

Amazingly enough, if the friend files a return, gets her own ITIN, pays all taxes owed, & doesn't claim any tax benefits that illegal aliens can't have, the matter is closed as far as the IRS is concerned.

Good luck.

[LdiJ]

If the friend does as Abezon suggested...and files a tax return with an ITIN application, it will remove your wife from any responsibility in paying taxes on the 1099 earnings. The faster the friends does that, the faster the problem will be resolved.

I would suggest putting some serious pressure on the friend to get a return filed ASAP. Once you know that its done, it would be safe to file a joint return. There was a recent update from NATP on this issue, and the IRS is specifically matching and removing income from people's records when that income come's from a return filed with an ITIN number.

You can download and ITIN application (W7 form) at [url]www.irs.gov[/url] and read the instructions and help her fill it out properly and to send the proper notarized copies of ID with it. A paper return must be sent with the ITIN application, along with a copy of the 1099 showing your wife's SS number.

Expect some resistance from the friend, because a significant amount of tax is going to be owed. It will be over 4500.00 just for the self employment taxes alone, not taking any actual income taxes into consideration. Also download an installment agreement request and include that with the return.

The one thing that you want to do is make absolutely certain that the return gets filed.

[RobertG]

Two more details to complicate matters greatly:

1) This is the SECOND year that she has done this. She did the same thing for this person in the 2005 tax year (before we met). It was not a large amount of money because the person only worked 1 month that year. She paid the amount due.

2) My wife and I filed an I-485 (application for her green card) and several copies of the G-325A (demographic information) with the DHS, and at the advice of our immigration lawyer, we listed this previous "job" on those forms. So, we have acknowledged that she "worked" there to the DHS.

The two above facts will probably make it very difficult for us to now say that she actually didn't work there.

As for the IRS being happy if they get their money, sure--they probably would. BUT, I simply do not have that kind of money to give them. The money simply does not exist and I see no way of making that kind of "extra" money exist for the next several years. (business is VERY slow in my line of work, right now--combined with some of my clients taking over 365 days to pay their bills, and things are not looking very good in the money department).

And, yes, the employer is very well-aware that they hired an illegal. I'd bet every dime I have on it. What's worse: I seriously doubt I can even get my wife to come clean with me and tell me who the "friend" was. I have my suspicions, but I don't think she will ever tell me, because it's someone who she feels she needs to protect. And, she knows damn well that I won't have a problem turning the person into the INS to protect myself.

[LdiJ]

Your only choices are as follows:

1) Pay the tax and hope the she pays you back.

2) File separately from your wife and pay higher taxes, and again hope that she pays you back...because one way or another your family is going to be paying for this.

3) Make your wife see reason and force her friend to apply for an ITIN number and file her own tax return claiming the income.

3) Get a divorce and let your wife deal with the problems that she has created.

If she doesn't give up the info on the friend, the friend will never stop using the SS number and you guys will be dealing with this for a very long time.