Question

Gwen Gullible was married to Darrell Devious. Theydivorcedtwo years ago. Three years ago (the yearbefore their divorce), Darrell received a $250,000 retirement plan distribution, of which $50,000 wasrolled over into an IRA. At the time, Gwen was aware of the retirement funds and the rollover. Thedistributionwas used to pay off the couple’smortgage, purchase a car, andpayfor living expenses.Darrell prepared the couple’s joint return,andGwen asked him about the tax ramifications of theretirement distributions. He told her he had consulted a CPA andwas advisedthat the retirement planproceeds used to pay off a mortgage were not taxable income. Gwen accepted that explanation andsigned the returnmainly because she was afraid of Darrell who didn’t like talking to her about financialmatters and got very angry and sometimes violent if she pressed him on things. Thefactis,however,Darrell had not consulted a CPA.One year ago (after the divorce), Gwen received a letter from the IRS saying they had not received thetax return for the last full year of marriage. On advice from a CPA, Gwen immediately filed the return.(She had a copy of the unfiled return.) The IRS soon notified Gwen thatno estimated payments on theretirement distribution had been paidand that she owed $60,000 in tax, plus penalties and interest. Thedeficiency notice provided that the retirement distribution, less the amount rolledover to the IRA,wasincome to the couple.Since Gwen did not know that the distribution was taxable andhadrelied on her husband’s information,she wants toknow if she can be held liable for the tax and penalties or if she qualifies as an “innocentspouse” under these circumstances.After appropriate research, prepare (in good form) amemoto Gwen explaining your findings.Thisis notsomethingwe have discussed in class so you will have to do some research on “innocent spouse” as wellas distributions from retirement plans

Answer 1

Refer to the below image for the above asked case, in a detailed way of explanation.