Unreported Income Fraud

Unreported income fraud occurs when a person purposely fails to report their true income to the federal Internal Revenue Service and state and local tax authorities when the law requires them to do so. There are also other types of legal proceedings that require an accurate report of a person’s assets and income. Failing to provide correct figures can lead to injustice or incorrect conclusions in court proceedings. Thus, state and federal laws provide strict regulations for situations in which a person must report their income.

What Legal Issues Involve Unreported Income?

Underreporting income may be an issue in many different types of legal proceedings, including the following:

• Requests for spousal support;
• Requests for child support;
• Filing federal, state, and local Income tax returns;
• Tax proceedings;
• Insurance claims;
• Claims for Social Security Disability Claims;
• Workers compensation claims;
• Distribution of property in a divorce case;
• Personal injury lawsuits;
• Claims for various federal and state benefits.

For example, spousal support is generally determined by the income level of each party. If one party falsifies information or hides their assets, it can seriously alter the amount of spousal support required each month. Thus, laws are very strict when it comes to reporting income.

Legal Consequences for Failing to Report Income

Generally, unreported income can lead to negative legal consequences if the person acted intentionally. The law makes provisions for reasonable errors or mistakes in an income report. However, if the person knew or should have known about a mistake or error yet failed to correct it, then the failure to act could also lead to a criminal violation.

Income report violations may lead to such white-collar crime penalties as the following:

• Criminal fines;
• Criminal sentencing (jail or prison time);
• Loss of benefits or distributions;
• Loss of business or professional licenses;
• Unfavorable distribution of property in a divorce case;
• Unfavorable effects on future applications for credit, employment, citizenship, etc.

Federal law makes it a felony criminal offense for anyone claiming any kind of federal benefit or payment to intentionally make a false statement in the course of filing the claim. The punishment is payment of a fine not to exceed $10,000 and/or imprisonment for a maximum term of 5 years.

It is a crime to file a false income tax return or to fail to file an income tax return altogether. A person who is convicted of filing a false tax return with the IRS can be sentenced to a prison term of a maximum of 3 years and payment of a fine of up to $250,000.

If a person is convicted of failing to file a tax return, they can be sentenced to a maximum of 1 year in prison and payment of a fine of up to $100,000. A person who is convicted of failing to file a tax return is subject to a prison term of up to one year and a maximum fine of $100,000.

Criminal conspiracy charges are also possible, and a person convicted of conspiracy to defraud the federal government with respect to claims can be sentenced to a term of imprisonment of a maximum of 10 years and payment of a maximum fine of $250,000. Comparable penalties can be imposed for conspiracy to commit to defraud the federal government.

Of course, a person must also report their income to state and local tax authorities and pay any tax that state and local law requires. State and local law undoubtedly also have criminal laws that make filing false returns or failing to file returns a crime and provide punishment for those who are convicted.

A divorce proceeding is another important legal proceeding in which a person is legally obligated to report their income and assets honestly and accurately to a court and the opposing party. For example, in a divorce proceeding in California, a party is required to file a 4-page income and expense declaration in which they report their income and assets under penalty of perjury. This means that the person must report the information honestly and accurately, or they can be charged with and prosecuted for the crime of perjury or lying under oath.

In California, however, a person can be subject to additional penalties if they lie under oath in a divorce case. If a spouse intentionally violates the law regarding disclosure of assets and income, a judge could order the person to pay the attorney’s fees of their former spouse. They could impose a fine as well.

In California, judges in a divorce proceeding may even have the power to award the entire amount of an asset that is not reported to the victim’s spouse as a penalty. If the failure to disclose is especially bad, the judge may actually order a spouse to spend time in jail for falsification.

In addition to concrete penalties, a person who is found to have lied in their disclosure of assets and income loses all credibility in the view of the judge in their case. The person can be put on the defensive in other aspects of their case. Their spouse can play the victim in order to win other concessions during the proceeding.

Other states have similar requirements for disclosure of assets and income in divorce cases. They also have penalties that can be imposed if a person intentionally falsifies their disclosure or fails to disclose. The exact requirements and penalties are different in different states and in different cases. One thing, however, is constant, and it is the fact that a judge does not view a lack of honesty and accuracy positively.

What Are Some Possible Defenses of Unreported Income Fraud?

The defenses available depend on the nature of the proceeding, the applicable law, and the state in which it takes place. Or a case may involve federal law. If a person is caught having made inaccurate disclosures of income and assets, a person might be able to claim that they made an honest mistake and that the inaccuracy was not intentional. They might have the opportunity to correct the mistake.

Much depends on the nature of the proceeding and the circumstances surrounding the disclosure – whether the inaccuracy is on a tax form, in a divorce disclosure, or in a claim for workers’ compensation. A knowledgeable lawyer with experience in the applicable law would be able to review the facts of the case and advise a person as to whether there are defenses available and what is the best way forward.

Can a Lawyer Help Me With Unreported Income Fraud?

Intentionally falsifying or withholding income information in a legal proceeding or in connection with paying taxes can be a serious violation of the law. If you have made inaccurate disclosures in any kind of legal proceeding, you want to consult a criminal fraud lawyer. LegalMatch.com can connect you to an experienced lawyer.

A qualified lawyer near you can help inform you of your rights when it comes to financial laws. Many legal disputes can be avoided by hiring a lawyer to help with income reports. Also, if you need to attend any court proceedings, your lawyer will be able to guide you through the process.