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Newsgroups: alt.folklore.urban
From: thf2@kimbark.uchicago.edu (Ted Frank)
Subject: Dec 31 divorce & Jan 1 marriage
Date: Sun, 13 Nov 1994 14:05:52 GMT

I'm posting this on behalf of Jeff Krentz, who did the research I was too lazy to do, but who doesn't have his own posting capability.

---begin included e-mail---
In article <396983$ell@Mercury.mcs.com>, Nathan Parker <naight@MCS.COM> wrote:

|> Can anyone out there trace a popular urban folk-legend about the |> married couple who, for tax reasons, divorce every year on December 30 |> or 31, only to remarry on the next day, Jan 1st, so that they |> don't pay the penalty for filing married?

to which Ted Frank replied:

>Yes, I can. It happened, with Caribbean islands offering special
>vacation packages for just such a purpose, and happened often enough
>that the IRS had to officially frown on it, though I have unfortunately
>sold the Andrews Tax Casebook that contained all of the relevant cites,
>but I'm sure Terry or Eck can back me up here.
--

I also remembered those deals, or at least hearing about them, so I decided to put my way too expensive IRS research data base to work on it. I hope you don't mind. It looks like the tax police may have pulled the plug on such things about 18 years ago or so, is that consistent with what you recall?

I'm a CPA in Detroit, posting through somebody else's account that I abuse on PC-OHIO. This BBS offers USENET conferences piped in, but as far as I can tell, I can't post directly to the group. Perhaps you can make this public if you see fit. I've been reading the alt.folklore groups for more than a year and may soon get a real account as some reasonable local providers have just opened up.

Again, I'm posting under the account of my associate, Charles Eglinton, but I'm not him, nor do I play him on TV

a======================================================================= =
Tax-motivated divo=rce.

IRS ruled that a married couple can't save income taxes by getting a year-end divorce in order to file as single individuals, then remarrying each other early in the next year. According to IRS, such a year-end divorce (even assuming it is jurisdictionally valid) is a sham and will be disregarded.

Rev Rul 76-255, 1976-2 CB 40.

According to IRS, neither the Code rule on marital status, nor the Code rule for filing joint returns nor the applicable regulations thereunder contemplate a "sham transaction" designed to manipulate for Federal income tax purposes an individual's marital status as of the close of a taxable year. Rev Rul 76-255, 1976-2 CB 40.

Rev Rul 76-255 (footnote 47) in its treatment of the "sham" divorce, deals with a situation where a valid divorce was obtained in a foreign jurisdiction. The reasoning is apparently equally applicable to a divorce obtained in the state where the parties reside.

The Fourth Circuit agrees with IRS that a sham divorce is not to be given any tax effect and requires that this issue be first decided by the Tax Court. The Tax Court may not side-step deciding this issue merely because, on the facts of the case, the Tax Court can decide that the year-end divorce was invalidly obtained. The validity or invalidity of the year-end divorce is within the province of the state court and it need not be addressed if the sham issue is dispositive of the tax results.

Boyter, H. David v. Com., (1981, CA4) 49 AFTR 2d 82-451, 668 F2d 1382, 82-1 USTC 9117, remg (1980) 74 TC 989.

In a private letter ruling IRS gave its approval to a couple getting a divorce who intend to stay divorced and not remarry even though they "will be living together much of the time after the divorce." In this situation, IRS said that it will recognize the divorce if the divorce is not declared invalid by a court of competent jurisdiction and there are no factors present to indicate that the couple should not be considered as unmarried individuals." IRS Letter Ruling 7835076.

IRS applied this rule to a couple that wanted to file a joint return after they obtained a divorce and continued to live together. The Tax Court agreed that they could not file a joint return. Although they were divorced in '76, the couple continued to live together in that year as before. They did not tell many, if any, of their friends and neighbors of the divorce and most people thought they were still husband and wife. They had been similarly divorced and continued to live together in '55, but remarried in '67. They wanted to file a joint return for '76 but IRS balked on the ground that even though the state law (Texas) recognized common law marriages, they failed to meet one of the state law requirements--a mutual agreement to live together as husband and wife. The Tax Court agreed. The husband testified that after driving his wife to the courthouse to get the decree, there was no agreement to live as husband and wife. "No, we just went back home and did." In later years, Social Security treated them as husband and wife. But the Court held that this was not relevant, since the situation could have changed by that time.

Peveler, Milton, (1979) TC Memo 1979-460, PH TCM 79460.

If spouses want to be treated as single for tax reporting purposes, they can be divorced but presumably continue to live as before, if the state has no common law provision. If the state recognizes common law marriages, IRS may look to see whether their way of living together makes them married under the state common law rules.
a=======================================================================

I hope this makes me famous, or at least a little less frightfully dull, dull, drab and boring.

Jeff "Not a Lion Tamer, But I Do Have My Own Hat" Krentz

Sometimes known as charles.eglinton@pc-ohio.com

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