The issue of unreported income is one that client’s and attorneys are often forced to deal with during a divorce. Many types of businesses are supported by cash transactions. It is important to recognize these situations so that they can be dealt with properly so as to avoid unnecessary consequences for the litigants. At the outset, let me say that I do not advise that anyone fail to report or underreport their income. Signing your name to a tax return that you know, or believe, to be false can give rise to criminal and civil penalties. The liability can even extend to a non-income producing spouse. Securing “Innocent Spouse” relief under the IRS guidelines is difficult and one would be well advised to speak with an accountant if you believe you fall into this category.
Documents filed with the cour such as a Case Information Statment and certifications must be true and accurate. Documents to be offered as evidence such as tax returns and bank statments must similarly be crdible. Neither an attorney or a client can knowingly and willfully off misleading or incorrect documents for consideratiom. If a judge becomes aware of unreported income they are bound to report the infraction to the IRS. This obligation was established in the case of Sheridan v. Sheridan. Obvioulsy, being reported to the IRS presents signifincant risks. A judge can discover the existence of unreported income after comparing the tax returns to the income and the marital lifestyle budget as detailed on the Case Information Statement.
Apart from filing amended and corrected tax returns, removing the case from the court system and utilizing mediation or arbitration. Using one of these forms of ADR can permit the parties to to speak freely about the economic realities of their marriage without exposing themselves to Sheridan problems. If you have unreported income it is crucial that you inform your attorney of this reality so that it can be handled properly
