Besides humiliating tabloid covers and media controversy, celebrity split-ups also cause devastating tax drama as they part ways. As discussed in the prior blog post, tax lawyers can be a surprising participant in marriage. They can also be essential in the event of divorce.
Let’s start with the 72 day adventure between Kim Kardashian and Kris Humphries. While it was Kim who first filed for divorce, Chris countered seeking an annulment on the grounds of fraud. The difference between the two is based on whether or not the marriage was valid when entered into. In order to be granted an annulment, the marriage must have been voidable, that is it couldn’t have legally taken place or one individual was incapable of consenting. This could mean that one was intoxicated or a victim of coercion or force.
Although those rushing to end things may not find the difference important, the IRS is closely at watch and sees an important distinction. If an annulment is granted, the couple was never officially married, and, therefore, had no right to file joint returns. If the couple already filed jointly, the IRS requires that that they “undo” their joint return by filing amended returns as unmarried filers. Thus, they would be hit with additional taxes. For those of you in similar situations, contact a tax attorney and tax professionals to assist you throughout the tedious process.
It is important to note that the IRS doesn’t ordinarily let people who file joint returns to switch to separate returns once the filing deadline of April 15th has passed. However, Revenue Ruling 76-255, which involves a one year marriage, deals with rare circumstances in which joint filers can switch to separate returns. For couples whose marriages have been annulled, refunds could be granted if there are reduced taxes paid as single persons.
A couple’s marital status as of December 31st determines their filing status for the year. Therefore, the IRS still considers Kim and Kris married for the entire year although they may not be together, as neither a divorce nor annulment has been settled. They are allowed to file a joint return or separate returns, however, they may not file as single persons. An experienced tax attorney may have advice regarding which would be most beneficial to the taxpayer.
If their divorce becomes final just before New Year’s Eve, the IRS will expect them to file as single the entire year before. Yet, if their wedding is annulled, to the IRS, they were never married. They must submit amended returns as unmarried filers. It would be beneficial to have a tax attorney on hand to consult in emergency.
Now, regarding the divorce of another high- profile couple, Tom Cruise and Katie Holmes have a different, yet peculiar case. Tom Cruise may face a huge tax mess in his divorce with Katie Holmes. Her plan to file for divorce in NYC might create huge problems for Tom, as he was doing his very best to avoid paying exceedingly higher New York taxes . Katie filed divorce documents in New York, primarily because she is more likely to be granted full custodial rights to daughter, Suri – a move that could hurt Tom over, tax-wise.
Despite Tom’s attempts to stay out of New York City legally (claiming he and Katie have been residing in California), documents have been found showing that Tom deeded their New York apartment to Katie last August, most likely for tax purposes. In addition to the status of their divorce at the end of the year, Tom will also be relying on the location to determine his tax situation, good or bad.
To avoid facing a similar drama to these two spotlighted split-ups, contact your knowledgeable IRS tax attorney today.
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