Is Your Ex Hiding Income to Avoid Paying Child Support?

IRS Form 3949-a May Be Useful for Proving Fraud, But Is it a Winning Tactic?

A common complaint we see during and after divorce is that the noncustodial spouse is underreporting income to pay less in child support. Now, we never counsel our clients to do this, because it places them in potential jeopardy. However, we’ve seen plenty of opposing parties try to fool the court on the issue of income. Some unfortunates have no choice: they’ve been underreporting income on their tax returns, so if they suddenly change course, they’re pretty much admitting to tax fraud. For others, this is a recent innovation brought on by the divorce or the child support dispute. They've either been given bad advice or refused to accept good advice. But for whatever reason, they’ve decided to flout the law, hoping they don’t get caught. The problem is, there are many, many ways they can get caught, and one, the IRS Form 3949-a, can be particularly painful.

What is a 3949-a Form for Child Support?

Let’s take this discussion from the beginning. Spouses are required to make a full, honest disclosure of their finances. Failing to do so exposes them to sanctions, such as contempt of court or having to pay the opposing party’s legal fees. The court might also discern that all is not what it appears, and proceed to interrogate the withholding spouse about personal and business recordkeeping. Two pertinent cases are worth noting.

In Hashimoto v. De La Rosa, 2004, a divorcing husband admitted in an affidavit to the court that he had not paid taxes. The judge promptly reported him to the IRS. Then, in Beth M. v. Joseph M., 2006, a husband testified during divorce and child support proceedings that he hadn’t filed tax returns for 1997 through 2001, as well as other times. The judge reported him to the IRS. These reports exposed the husbands to possible tax fraud charges.

And that brings us to the central question for this article. If a spouse—and let’s be honest, it’s generally the husband—is underreporting income to chisel a bit off the child support order, should the wife turn him in for tax fraud? This is a real possibility, given the IRS Whistleblower Program. All she has to do is file a Form 3949-a.

Leveraging the IRS Whistleblower Program for Child Support

There are two parts to this, and we’ll discuss each separately. First, any citizen with knowledge of fraud against the U.S. Treasury can file an IRS Form 3949-a, reporting what they know about the alleged fraud. Thus, a wife could finger her husband as a tax cheat. This is a huge cudgel she can wield against him, and the mere threat could be enough to leverage a fairer child support settlement. There are just a couple of problems with this strategy.

First, she could be naming herself as a party to the fraud. If the couple has filed joint tax returns, each has signed attesting to the veracity of the return. If a woman is unsophisticated about finances, she could claim to be an “innocent spouse,” who only signed because she fully trusted her husband. But these days, and especially for two-career couples, it’s harder to establish that the wife wasn’t savvy enough to know what was going on. After all, she knows how much money is required to maintain their lifestyle, so if the numbers on the tax return don’t add up, she can hardly plead ignorance.

But let’s say she could convince the court she was an innocent spouse. The wrath of the IRS would fall exclusively upon her ex or soon-to-be ex-husband. He could be assessed tens of thousands in back taxes and incur massive penalties, as well as jail time. That might be what he deserves, but it isn’t going to help her financially, if he suddenly has to go into hock to pay Uncle Sam. So, maybe turning to the state’s evidence isn’t the best strategy.

Of course, the second aspect of the IRS Whistleblower Program is that the wife could apply for a reward. Yes, whistleblowers are entitled to a share of the funds the IRS recovers due to the unique information they provide. That could prove to be more than ample for child support. The problem here is that the IRS only provides awards for large-scale tax avoidance. So, even if the agency pursues your case and recovers funds, they might not think it was a big enough tip to justify an award. Additionally, it is currently taking the IRS more than 10 years to process applications for rewards, so your kids might be fully grown before you see any money.

Other Options for Parents Fighting Fraud in Child Support Disputes

Fortunately, custodial parents have options, short of informing the IRS, to get the courts to impute income and award more child support. You can provide evidence of a spouse's unsustainable lifestyle at the reported income level. A judge is bound to be skeptical of any individual who claims to be earning minimum wage while driving a Maserati.

There are circumstances where filing a Form 3949-a might be appropriate. But it is the nuclear option for most divorce cases and child support disputes. It’s a weapon of last resort, which is often more effective as a deterrent than it is once you launch.


Karen Rosenthal

Karen B. Rosenthal is a partner and co-founder at matrimonial litigation firm Bikel Rosenthal & Schanfield LLP, where she brings 35 years of matrimonial law experience to bear in matters involving high-net-worth equitable distribution, contentious custody battles, and other high-stakes disputes. Certified as an Attorney for the Child and a frequent speaker on topics related to children going through high-conflict divorce, she has been recognized as a leading New York lawyer by Super Lawyers, Best Lawyers, Crain's New York Business magazine, and New York magazine.

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