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  1. #1
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    Aug 2007
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    Default Voluntary Disclosure and Tax Evasion

    My deceased husband and his business partner owned a "cash" business for 14 years. I married my husband 3 years ago and though I some idea of his business dealings, I had no idea of the extent of his tax evasion until he died and I became the executrix of his estate and came to the knowledge of what was going on as I started uncovering more and more evidence. I was also pregnant and had 2 children during our short marriage and we dated only 6 months before getting married, so I pretty ignorant about what was going on. Anyway---I write for 2 reasons---how risky is making a voluntary disclosure to the IRS and could I be held responsible for ALL the back taxes or just the 3 years we were married? Would his estate (which currently has nothing in it, but may eventually have some funds) be responsible for the back taxes? And how risky might this be for his business partner ? We are talking at least $30-60K in cash unreported annually.

    Thank you for your help.

    P.S. I guess I should add that his partner has pretty much told me that all his assets are in his wife's name, though he does still have the business (I own 50% of it currently, but will have to sell my portion to him at some point).

  2. #2
    Join Date
    Jul 2007
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    Houston
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    Default Re: Voluntary Disclosure and Tax Evasion -NY

    I will give you a comprehensive answer but please answer the following questions. Did you file joint returns with him while married? If not, were returns filed at all?

  3. #3
    Join Date
    Aug 2007
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    6

    Default Re: Voluntary Disclosure and Tax Evasion -NY

    Yes, returns were filed, and yes, they were joint returns.

    By the way, his partner is pretty much a scoundrel---so I'm not concerned so much about how this might affect him, I'm more concerned about the possibility of having to spend the rest of my life looking over my shoulder, wondering if the IRS is coming after me and my children.

    Thank you very much.

  4. #4
    Join Date
    Oct 2006
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    5,613

    Default Re: Voluntary Disclosure and Tax Evasion -NY

    Quote Quoting widowed
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    Yes, returns were filed, and yes, they were joint returns.

    By the way, his partner is pretty much a scoundrel---so I'm not concerned so much about how this might affect him, I'm more concerned about the possibility of having to spend the rest of my life looking over my shoulder, wondering if the IRS is coming after me and my children.

    Thank you very much.
    You can only be held responsible for the joint returns that you filed. Nothing that was done prior to that can be held against you. You may however qualify for innocent spouse relief. You really need to go and consult with a local tax professional, and lay everything out on the table.

    However, the future gets tricky. Its likely that its not in your best interest to file a joint tax return for 2007 (or 2006 either if it hasn't been filed yet). However, as executrix its your responsibility to file an accurate tax return for him, and yes, his estate will be responsible for any taxes that he owes.

    Also...and this one is a biggie.....you NEED to get rid of your ownership of 1/2 of that business ASAP. As long as you own 1/2, you are potentially liable for any cheating the partner is doing.

    Again, this is not something that you want to be attempting to handle without competent, professional advice. You don't have to hire a high priced tax attorney or CPA, at least not at the begining. You just need to consult with a competent professional. Look for a local tax office that is open year round, rather than just during the tax season. They generally have very experienced people on staff.

  5. #5
    Join Date
    Jul 2007
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    Houston
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    Default Re: Voluntary Disclosure and Tax Evasion -NY

    Quote Quoting llworking
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    You can only be held responsible for the joint returns that you filed. Nothing that was done prior to that can be held against you. You may however qualify for innocent spouse relief. You really need to go and consult with a local tax professional, and lay everything out on the table.

    However, the future gets tricky. Its likely that its not in your best interest to file a joint tax return for 2007 (or 2006 either if it hasn't been filed yet). However, as executrix its your responsibility to file an accurate tax return for him, and yes, his estate will be responsible for any taxes that he owes. The rules for innocent spouse are laid out at: http://irsos.com/InnocentSpouse.htm

    Also...and this one is a biggie.....you NEED to get rid of your ownership of 1/2 of that business ASAP. As long as you own 1/2, you are potentially liable for any cheating the partner is doing.

    Again, this is not something that you want to be attempting to handle without competent, professional advice. You don't have to hire a high priced tax attorney or CPA, at least not at the begining. You just need to consult with a competent professional. Look for a local tax office that is open year round, rather than just during the tax season. They generally have very experienced people on staff.
    I agree with this good advice except that innocent spouse may not apply unless the IRS makes an assessment before you filing an amended return. It appears the IRS has no knowledge of the understatement of income at this point so no liability exists to get releif from. Filing an amended return, which constitutes a return, would seem to disqualify you from innocent spouse relief because it requires that you be unaware of erroneous or ommitted items at the time the return is filed.

    I also want to add that you must be very careful in dealing with the partner because he could become the star witness against you in a fraud case. It does not seem like much of a stretch to imagine him claiming he knew nothing about the unreported income and that you and your husband conspired against him. You really need to have a professional walk you through this minefield.

  6. #6
    Join Date
    Oct 2006
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    5,613

    Default Re: Voluntary Disclosure and Tax Evasion -NY

    Quote Quoting irsfixer
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    I agree with this good advice except that innocent spouse may not apply unless the IRS makes an assessment before you filing an amended return. It appears the IRS has no knowledge of the understatement of income at this point so no liability exists to get releif from. Filing an amended return, which constitutes a return, would seem to disqualify you from innocent spouse relief because it requires that you be unaware of erroneous or ommitted items at the time the return is filed.

    I also want to add that you must be very careful in dealing with the partner because he could become the star witness against you in a fraud case. It does not seem like much of a stretch to imagine him claiming he knew nothing about the unreported income and that you and your husband conspired against him. You really need to have a professional walk you through this minefield.
    Its critical that she have a professional walking her through this. She was basically unaware at the time that the original returns were filed that they were so erroneous.

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