My former spouse received approximately $1.055M in cash proceeds from the sale of startup stock in 2020 (acquired by a public company). On the federal return, the gain was treated as eligible for QSBS exclusion.
However, I’ve since learned that California does not conform to the QSBS exclusion, and the $1.055M should have been taxed almost fully as its cost basis was negligible (less than $250).
We filed Married Filing Jointly at the time. We are now divorced, and under our marital settlement agreement that income is his separate property and he is responsible for any associated tax liability and audits of prior returns.
My questions:
Based on your experience, if the QSBS exclusion was applied to the California return, is that likely an error that should be corrected?
What is the recommended process if one former spouse will not cooperate in amending a joint return?
In situations like this, is it appropriate to consider an IRS or FTB referral for potential misreporting? How likely will the FTB pursue this referral?
Thank you for any guidance.
