Divorce & Hidden Money: Whistleblowing, Tax Fraud & Tipping The IRS
The post “An Asset Search, Tax Fraud & Divorce” was first published at the Asset Search Blog on January 16, 2008. It is republished below as the seventh post in the “Divorce & Hidden Money” series. The post describes my investigation of a divorcing husband. While I was the divorcing wife’s attorney, I discovered the husband had hidden money offshore in anticipation of the divorce. I also suspected the husband concealed this money from the IRS in furtherance of a tax fraud.
If evidence of tax fraud is brought to the attention of a judge presiding over a divorce, the judge may report the fraud to the IRS. When the divorcing husband admitted in his affidavit that he had not paid taxes, the judge in Hashimoto v. De La Rosa, 2004 slip op. 51081(Sup. Ct. N.Y. County, June 23, 2004) reported him to the I.R.S. In Beth M. v. Joseph M., 2006 slip op. 51490 (Sup. Ct. Nassau County, July 25, 2006), the judge similarly reported a husband who testified during court proceedings that he had not filed tax returns for the years 1997 through 2001 and other times.
Some divorcing spouses meanwhile, directly tip the IRS about their spouse’s tax fraud. The spouses supplying these tips may be eligible for a reward as participants in the IRS Whistleblower program. It typically takes six or more years for an IRS whistleblower to collect any reward and a whistleblower can face many challenges. More information about blowing the whistle is at the Reuters article Record $104 million reward boosts whistleblowing on tax cheats, which cites me; and the New York Times article The Price Whistle-Blowers Pay For Secrets.
An Asset Search, Tax Fraud & Divorce
The information supplied by foreign financial investigators indicated the divorcing husband had hidden marital assets offshore. Evidence gathered during the divorce also suggested that the husband might have committed a tax fraud in hiding the marital assets.
To try to detect any additional assets hidden by the husband, I contacted Brian. Brian was a former high-ranking official at the Treasury Department’s Financial Crimes Enforcement Network and he had earlier been an IRS Special Agent. Brian was going to lead our interview of the husband’s business associate who we were about to meet for the very first time. Right before the interview, Brian identified some of the federal statutes relevant to many tax fraud investigations:
- 26 U.S.C. § 6050I, large cash reporting requirements for trades & businesses (including attorneys).
- 26 U.S.C. § 7201, most commonly applied tax evasion statute (however requires proof of a tax liability).
- 26 U.S.C. § 7203, failure to file a timely tax return.
- 26 U.S.C. § 7206 (1), perjury on a return / false statements, (unlike 26 U.S.C. § 7201, proof of a tax liability is unnecessary).
- 26 U.S.C. § 7206 (2), perjury on a return / false statements, but primarily used against tax return preparers such as accountants and attorneys.
- 18 U.S.C. § 371, conspiracy to commit offense / defraud the United States.
- 18 U.S.C. § 1001, false statements made to the federal government (can apply to any material verbal or written statement, even if unsworn).
- 18 U.S.C. § 1956, money laundering.
- 18 U.S.C. § 1957, money laundering involving property derived from specified unlawful activity.
- 18 U.S.C. § 1961, Racketeer Influenced & Corrupt Organizations (“RICO”).
- 31 U.S.C. § 5324, structuring bank deposits.
At the interview, I hoped that Brian and I would learn what the business associate knew about the divorcing husband’s hidden money and suspected tax fraud. As Brian started the interview, he told the business associate: “Once a tax fraud investigation starts rolling along, nobody knows where it may end up”.