24 May Does Unreported Income Cheat Child Support Recipients?
Parents who depend on child support may suffer when unreported income escapes the court’s attention in calculating child support. Fathers who are paid under the table, mothers who receive tips — these are some of the parents who can cheat child support authorities by failing to report all of the income they receive. In court proceedings, there is an investigative process known as “discovery” to gather income information. But discovery relies on self-reporting. The child support court can access a national database to track down parents who work for legitimate employers, but there are many holes in that net.
Now there is a study by researchers at American University finding that more than two-thirds of those who earned income from online commerce — like eBay auctions, Airbnb home rentals, Etsy craft sales, Eventbrite tickets, and Lyft taxi services — did not report their income. People who sell goods and services on these platforms generate over $15 billion per year. Yet, e-commerce companies are required to issue 1099 forms only if the seller earns more than $20,000 and conducts 200 or more transactions. Not surprisingly, the majority of people who sell their goods and services on the internet do not receive tax reporting forms.
Parents Who Cheat Child Support Authorities
Is it possible to catch parents who cheat child support by failing to report their income from internet sales? Using the tools that are currently available, some of these scofflaws can be caught. Here’s how:
- If you suspect that a parent sells goods or services online, search for the seller’s internet profile. Seller profiles often contain information about the volume of sales and contain links to the seller’s products. On eBay, for instance, sellers actively pursue feedback from their buyers to build trust with new customers. An eBay profile can provide strong hints leading to proof of internet sales. It may be helpful to start with Facebook, Twitter and Pinterest, where many sellers promote their goods and services.
- Serve interrogatories to ask the parent whether he/she sells goods or services on the internet; which internet sites he/she uses to conduct sales; a complete list of all products and their prices; and the name of his/her seller profile. Some sellers will admit their sales, which they did not report to tax authorities because they did not know they had to.
- Send document requests to obtain records of all sales income and expenses, including the cost of producing the product, shipping expenses, fees and commissions charged by the website, and advertising/promotion. Some sellers keep their records in Quickbooks. Get that information on thumb drive, and don’t forget to ask for credit card merchant records (including Square) and business bank statements containing deposits.
- Take a parent’s deposition and confront them with evidence of their unreported income. Be sure that the seller and his/her lawyer understand the consequences of lying about the income. Taxpayers who fail to report all of their income may face IRS interest and penalties; and child support payors who defraud the court may face contempt sanctions, which include fines and incarceration.
Get Help with Child Support Cheaters
For more information about discovering child support income in tax documents, consult my book Frumkes & Vertz on Divorce Taxation. In Western Pennsylvania, call me (Brian C. Vertz 412-471-9000) for a family law consultation or visit my firm’s website, pollockbegg.com.