So few days ago my co-worker shared a story of a NAT getting what they deserved, and I thought you guys would like to hear it; and maybe you could also offer a few words of advice.
A little background about my co-worker. About 7 years ago she was in her 3 year of college, using grants and student loans, when she had a very difficult pregnancy and withdrew mid semester. Since then she has not gone back to college. Since she withdrew and did not complete her degree, she has to not only pay back the loans, but the grants as well --and she says she has not been able to put her loans/grant into deferment because of this. She says she tries to pay back what she can when she can; but she is overdue to the tune of 10k. But with a part-time retail job, it is slow going.
Now last year she moved to a new house, and while she updated her address with our place of employment, for some reason her W2s were sent to her old address. She was able to get a copy of her W2s and her and her husband just filed. Now they file jointly, but with a "injured spouse." This is not a physical injured spouse, but a financially injured spouse--basically it means that the government can only take her part of the tax return to pay for her student loans; but leaves her husband's part of the tax return alone.
Her share of the tax return is usually about $1000, and his share is about 4k (he is the full time worker). Well a few week after they filed they get a notice back from the IRS saying that her W2 had already been filed!!! Yep, whoever was at her old place got her W2 and decided to file it and filed it jointly. And that tax return went to pay her over-due student loan to the tune of 6k!
Apparently who ever was at her old house used her W2 and filed jointly as well, hoping to up their tax return. But not knowing about her loans they did not file "injured spouse" and therefore did not get back a single dime!!! and over half of her loans are now paid off. :) Now that is poetic justice!
I wish I could have been there when that NAT found out they were not getting back anything. What were they going to do? Admit they committed tax fraud to the IRS?
And that brings me to asking for advice. My co-worker does not want to do anything about this; and just let her husband file without her W2, they will still get back about 3k to 4k. But I am worried that if she does not bring this to the attention of the of IRS, she could face criminal charges if it is ever found out.
She is worried that if she lets the IRS know they will reverse the 6k that went towards her student loans and she is just so happy thinking that all she has to pay is now 4k rather than the 10k. But I think the consequence of not telling the IRS know would be worse than owing 10k.
So is there anyone familiar with tax laws and situations like this? Is there any chance that the 6k would not be reversed? I am really worried that if the authorizes find out she will be in major trouble.