Often, one spouse in a divorce wants to reduce the income apparently available to pay spousal and child support, and over-withholding taxes seems like a simple and harmless way to do so. After all, why would Uncle Sam object to an interest-free loan?
Such intentional over-withholding is not only unethical, it is illegal.
Section 6702(a) of the Internal Revenue Code lists a number of situations that constitute “frivolous filing” when they arise with respect to the filing of a tax return. Sub-part 22 of §6702(a) specifically provides that the following is indicative of frivolous filing: “an amount of withheld income tax or other tax that is obviously false because it exceeds the taxpayer’s income as reported on the return or is disproportionally high in comparison with the income reported on the return.”
The penalty for filing a frivolous tax return is $5,000.
A brief review of the history of taxes withheld, taxes paid and refunds received by an indivual or a couple involved in a divorce by a CPA or other qualified tax professional may be warranted where something seems amiss.