A potential new client called. “I have this divorce case. I need a tax lawyer to send IRS a letter. I think my husband has been hiding income and investments. I don’t want to get burned when they find out about it all! He’s been hiding income for years, and now he’s hiding it from me.”
She expected to hurt him by causing increased tax liability, and possibly a criminal tax investigation. The wife was very angry about the progress of her divorce case, and wanted to speed things up a bit. But also, she wanted vindication, for something.
The idea of using IRS as a tool to injure her spouse was comforting to the angry spouse.
Oddly enough, we had another call. This time, the husband (different couple) also wanted a letter written to IRS, to be exhibited in the divorce case. The gentleman did not intend to report his otherwise unreported income, but instead only threatened to do so. He believed that IRS could penalize he and his wife, jointly.
The caller well-expected that IRS would assess tax, if this letter was ever shared with the government. His intentions were simple: Coerce her to cooperate by threatening to increase her tax liability.
In this situation, this husband wanted to use the IRS as a tool to help control his uncontrollable spouse. But he never considered that extortion was not advisable in a legal proceeding.
Consider Newton’s third law of motion? “For every action, there is an equal and opposite reaction.” This theory applies more than the physics of motion. It applies to life.
Criminal Tax Attorney Advice
We help handle some very large, highly contested marital dissolutions. Almost always, there is a significant dispute over the value of assets and income. The discovery process in the divorce may be underway but still does not guarantee the angered spouse will find all of the other spouse’s income. So using the threat of government involvement as leverage may seem attractive.
But maybe using this “tool” is not a party’s smartest choice. Here is where Newton’s whole “equal and opposite reaction” discussion proves true.
What Could Actually Go Wrong
So what happens when a spouse becomes an IRS whistleblower against the other spouse? I want to provide a word of caution to divorce attorneys, tax accountants, and couples breaking apart. When there is unreported income or assets, leveraging the Internal Revenue Service within the marital dissolution is a very slippery slope. Consider the risks:
- Likely exposure to unexpected tax liability and penalties;
- Acceptance of liability for the other spouse’s tax debt;
- Self-incrimination for multiple violations of the criminal tax code;
- Actual commission of other crimes (ie: extortion);
- Loss of attorney-client privilege, or other protective privileges.
Can you imagine some of the other sensitive issues that would arise, potentially injuring both spouses? This list could be detailed by few dozen subtopics.
Besides, divorces are emotionally fueled. Acting with emotions like anger, impatience, or even vindictiveness will never fare will when dealing with the Internal Revenue Service. You could lose your bargaining leverage, your privileges, even your rights.
Let’s just say that, before creating a “tell-all” letter, maybe you should first have a “tell-all” conversation with a criminal tax attorney.
Be smart out there …