When an IRS auditor or criminal investigator suspects that a taxpayer has unreported sources of income, he or she looks for ways to calculate that unreported income. One way is the net worth method of proof.
Forensic accountants and fraud investigators can use the same method to calculate unreported income in other types of cases, such as divorce. In this video, Tracy describes how the calculation is done and how the results may be used.
Both civil and criminal cases often involve an element of proving or disproving income of an individual or business. It is not unusual for a divorce case to include allegations of hidden income or assets. In contract disputes alleging the loss of sales or profits, an accurate determination of income is critical.
In criminal cases, the issues surrounding the income of an individual or business have even higher stakes. These cases are quite often tax-related matters, but cases involving white collar crimes and drug trafficking usually include questions about income too.Continue reading
This article was originally printed in the ABA Section of Family Law eNewsletter, October 2013.
There are four widely recognized methods of calculating income in family law cases. These four methods have been developed for use by the Internal Revenue Service in calculating unreported income in tax cases, and are the primary ways a lifestyle analysis can be completed.
Specific Items Method
One of the most straightforward ways to complete a lifestyle analysis is through an analysis of specific items of income. This method is possible when there are substantial documents detailing cash inflows, and is considered a “direct method” of verifying income.
Income-related information is gathered from bank and brokerage statements, tax-related documents, and business records. Inflows are identified and summed, theoretically verifying the income disclosed in the family law case. This method is easy to understand and present, which makes it an attractive option for evaluating claimed income. The court will easily be able to understand how income was calculated.Continue reading
This article was originally printed in the ABA Section of Family Law eNewsletter, Feb/March/April 2011.
When a divorce or a child support issue is looming, it’s amazing how a quickly a closely held business starts “losing money.” I use quotes because such a situation is so predictable. One party wants to protect her or his assets, and when there is a business involved, the motivation to hide money can be stronger than usual.
The types of businesses that can be prone to manipulation of the books include restaurants, retail stores, doctor or dentist offices, construction companies, auto dealerships, and law practices. This list isn’t exhaustive by any means, but it provides good examples of businesses at risk of financial maneuvering.Continue reading