Account owners beware

A long time client of mine called me recently and she was frantic on the phone. The IRS hit her with a notice demanding $20,000+ payment before Thanksgiving. Immediately I was stunned, how could I have messed up on her taxes that bad???? That thought echoed and reverberated throughout my head as I drove immediately out to calm her down and assess the damage that I caused. I was already thinking that a $20K deficiency amounts to over $50K in income that I somehow missed while preparing her taxes. Yikes

As it turns out, the deficiency was associated with a joint bank account she had with a friend that lived abroad.  I had no idea the account existed, and she never thought about reporting it to the IRS because the funds were not hers.  She did not even receive bank statements for the account.  The money was deposited and used by her non-resident alien friend.  However, those details do not matter.  The holdings in the account were sold at a sizeable gain, and she was a joint owner of the account.  Even though she did not withdraw from the account for her use, the funds were accessible to her, and therefore the gains are taxable.  It broke her heart.  Without going into specifics, her daily life is a struggle to say the least, and seeing her bright smile and beaming eyes gives me the motivation to fight the world.  Then she had to endure this.

Do not let her painful lesson be in vain, please be mindful of all financial accounts that you are associated with.  If you are on record as an owner of an account (whether joint or sole owner) then you are liable for any associated taxes thereof.