I first published this post on December 14, 2007 and it is now the 12th post in the “Divorce & Hidden Money” series. As shown below, a divorcing spouse’s effort to valuate marital assets occasionally raises tax fraud or other criminal law issues. Furthermore, assets and income can be concealed by pocketing cash; using a business bank account to pay personal expenses; and cashing checks instead of depositing them into a bank account:
As my post “Divorce, Child Support & Reporting Tax Fraud” mentioned, divorcing spouses sometimes tip the IRS about a suspected tax fraud. Mrs. Benjamin for example, tipped the IRS because she thought that her divorcing husband had underreported revenue from his commercial maintenance and landscaping business. She specifically provided the IRS with the business documents Mr. Benjamin had produced during the pretrial discovery phase of their divorce case. These documents included payment summary records from Mr. Benjamin’s customers like Wal-Mart. As part of her tip to the IRS, Mrs. Benjamin also turned over joint tax returns which Mr. Benjamin had supposedly filed for the years 1998 and 1999.
A records check at the IRS however demonstrated that the 1998 and 1999 joint tax returns had never actually been filed by Mr. Benjamin. The IRS also learned that from 1997 through 2001, Mr. Benjamin had neither paid income tax nor filed state or federal income tax returns. IRS Special Agents then received false information from Mr. Benjamin when they interviewed him at his home on June 26, 2002. The IRS also reviewed Mr. Benjamin’s bank accounts and conferred with Wal-Mart along with Mr. Benjamin’s other customers. As a consequence of its asset search and tax fraud investigation, the IRS finally determined that Mr. Benjamin’s total gross receipts or sales between 1998 and 2001 had actually been about $1,139,470.18; and that Mr. Benjamin had a $129,396.91 tax liability.
The IRS further recognized that Mr. Benjamin had hidden assets and income by: pocketing cash payments from customers; paying personal expenses from a business bank account; and cashing customers’ checks instead of depositing them into his bank account. During its investigation, the IRS additionally discovered that Mr. Benjamin had defrauded Wal-Mart through a false invoicing scheme. By seeking payment for services he had never performed, (and faxing Wal-Mart twenty-two phony invoices between February 2001 and January 2002), Mr. Benjamin had duped Wal-Mart out of $417,583.
The IRS criminal investigation started by Mrs. Benjamin’s tax fraud tip eventually led to Mr. Benjamin’s 58 count indictment on July 27, 2005 in U.S.A. v. Benjamin, Index # 05-Cr-00348, U.S. District Court, District of Colorado. Pursuant to his January 5, 2006 plea agreement, Mr. Benjamin pleaded guilty to violating 26 U.S.C. § 7201 (tax evasion) and 18 U.S.C. § 1343 (wire fraud). Because of his white collar crimes, Mr. Benjamin was sentenced on June 16, 2006 to serve two years in prison followed by three years of supervised release. As Mr. Benjamin’s sentence and criminal judgment both mentioned, he was also directed to start making restitution payments to Wal-Mart after his release from prison.
Copyright 2007-2015 Fred L. Abrams