I am not sure if this belongs here or under Sub S. Corporations... but will start here.

Long story short... ugly divorce. Both ex and I 50% shareholders in Subchapter S Corporation. Both worked in business since beginning. Filed for divorce Jan 07. Judge granted ex sole control over business during divorce...Ex ended up with business in settlement mid 2008. The dynamics of all is absolutely baffling. Money that started the business came from MY father, as well as loans from him during the years in business. Ex was cheating... the list goes on and on. Can't do anything about that but need to now clean up the aftermath.

When ex and accountant filed 2006 taxes issued K1 to me. I used the corporate books that I prepared as as the bookkeeper for the corp throughout 2006 to determine amount of income actually paid to me to file my taxes. Months later... receive K1 in my name. 2007 ex and accountant did same to me. I did not receive ANY payments from the business of any sort during 2007, however ex spouse DID distribute the K1 income...... to himself. Did not retain in the business for either year. Judge ordered ME to pay the tax on the income HE received.

I understand the concept of K1 income and how the shareholder is responsible for the tax on the "income" whether it is distributed or not... problem is actual cash WAS distributed just not to the shareholder that was issued the K1. Somewhere there has to be information as to how the IRS would handle this. I have searched their website as well as the web and can not come up with a scenario such as this one.

I need to find either an IRS code, rule, or federal statute that says a business shareholder can not take the draw of the distributions personally and then attribute the income to the other shareholder. If I can find such a federal rule/statute that would trump the state decision. I cant possibly afford more attorney fees. I am a financial wreck looking for a place to happen. I do not have the funds to pay the tax. I was awarded 50% of the real estate property but ex refuses to cooperate in sale of property. I do not have the means to pay this so going to the IRS for help is not an option until I have further information.

Any help, ideas or information would be greatly appreciated!!!