Whistle blowers are among the favorite heroes loved by the IRS. In fact, the IRS loves them so much that it has a program that may award a whistle blower up to 30% of the evaded tax or penalty it collects. While this should not be a problem to anyone that pays their taxes dutifully, you should be concerned if someone can blow the whistle on your illegal operations. So, who are these whistle blowers? Former employees, ex-business partners and even spouses are some of the people that may decide to out you to the IRS. These people may decide to turn on you for a couple of reasons and this blog article will help you know what to do in case it happens. But first things first.
Why do spouses turn on each other?
It is painful to think that the person you have committed your life to can blow the whistle on you. These people, however, have spent so much time with you and are likely to know some of your secrets including your tax evading tactics. Here are some reasons why spouses turn on each other.
Let’s be frank here. Your spouse will not want to out you to the IRS if you are still in love with each other. This is especially true for people who are going through a divorce proceeding. There is likely to be an emotional element that makes a spouse or separated partner want to turn you in because of tax crimes. Maybe they feel hurt, betrayed or neglected over something you did to end the marriage and they may want to have their revenge. While there are other reasons for outing you, it is crucial that you do not underestimate the role of emotions in this. After all, you might end up in jail just because of this.
2. To get more assets
Another good reason why a spouse may tell on you to the authorities is if they seek to gain more property or assets from the disclosure. In a separation or even divorce case, it is not unlikely for a spouse to turn on you especially if your state laws do not support equitable division of property. A spouse may choose to reveal any assets that you are hiding. This may include any offshore assets or property that is not disclosed to the IRS. You spouse may believe that they have to turn on you to get a favorable settlement.
3. As a cleansing act
Another popular reason why your spouse may choose to turn on you is to ingratiate themselves with the courts or the IRS. They can do this by exposing your tax evading practices in court or by blackmailing you to get a better deal when separating.
Why they need to reconsider being an IRS informant
Many people believe that they stand to gain a lot when they inform you to the IRS. Although the IRS whistleblower office pays a couple of informants, it only pays a small percent of the funds recovered or the penalties. Furthermore, the claims are known to take almost five to seven years before they are paid out. These are more reasons why you should reconsider outing your spouse to the IRS;
1. It can lead to reduced assets
You may believe that disclosing unreported assets or foreign assets to the IRS will mean more assets for you but this is not always the case. Disclosing that your spouse engages in tax fraud may be a sure way to deplete your assets. In other cases, it might completely exhaust all the assets that you intend to get from the separation. These assets may be seized by the IRS or your spouse may choose to forfeit them. The criminal charges leveled against your spouse may also lead to incarceration and this will ultimately reduce your stream of income.
2. You may implicate yourself
Disclosing tax fraud can also be the surest way to implicate yourself. You increase the risk when you had prior knowledge of your spouse’s transactions but failed to do disclose the scheme. In some cases, spouses end up facing the same charges while they can face fines, restitutions or even penalties in other instances. One way to ensure this does not happen is to avoid being an IRS informant in the first place.
What you need to do in case your spouse outs you?
The first thing that either spouse needs to do when there is a possibility of tax fraud disclosure is to separate your finances. As with all the forms of motivation for disclosure of tax fraud, it is likely that your spouse thinks they will be implicated. This means that you should be ready to file your taxes separately.
Speak to your tax advisor
You will also have to talk to your tax advisor to see if you have any taxation issues. Your CPA or tax attorney will be in a better position to advise you if you owe anything to the IRS and if they can prosecute you for that. A good tax advisor will also help you to file a Married Filing Separately Return. A CPA or tax attorney will also tell you if you are facing potential charges and this will prompt your next step.
Consult with your tax defense attorney
The IRS may decide to initiate a criminal investigation in the event that they find there was foul play when filing your taxes. This may include failing to report your taxes, under reporting your returns or even hiding your offshore assets. After the investigations, the IRS will determine whether they should initiate a criminal prosecution. This is where it is extremely crucial to hire the services of a competent tax defense attorney since you risk forfeiting your property or even going to jail. A good tax defense attorney will help you understand your tax liability and potential causes of action to take.
Have a question? Contact Venar Ayar.