I have a friend who is happily married and she filed Head of Household and her husband filed married filing separately. They have a daughter who is in college so my friend claimed her as a dependent. My question is, I tried to tell her that she cannot file Head of Household as she and her husband are still married living together as man and wife. I am afraid she is going to get in trouble with the IRS when they find this out. She filed that way last year too. Can she file as Head of Household while still married living with her husband? Also, what is the penalty if she gets caught filing a bogus status like that.

You are correct - if you are legally married you must file as married - either as Married Filing Jointly (MFJ) or Married Filing Separately (MFS). Since her husband filed as MFS she must also file that way. Her husband is required to have reported her Social Security number on his return - that's how the IRS is able to check the spouse files properly. So I would guess that some time in the next year she will get a pleasant letter from Uncle Sam outlining the extra taxes she owes, plus interest.

ebaines has it covered; I have nothing to add!

Last year too? It takes about 2 years for the IRS to sock someone with penalties and interest.

Joy has a good point, and it MIGHT take three years given the IRS cutbacks