subject: Judgment Recovery And Tax Returns [print this page] I am not an attorney, I am the judgment broker. This article is my opinion, and not legal advice, based on my experiences in California. If you ever need legal advice or a strategy to use, please contact a lawyer.
With judgment enforcement, often you have to subpoena records from 3rd-parties, such as banks for banking records, to find out where your debtor's money is coming from and where it goes. Preferably, you could ask the judgment debtor directly, for copies of their tax return(s) for your inspection. Unless in bankruptcy court, that can be problematic, because the judgment debtor's tax returns are most often exempt, even if you have served a subpoena served on the judgment debtor, which instructed them in a request for the production of documents.
Not everyone puts the whole story on their tax returns. The IRS requests that everyone to put the truth on each tax return, and has the opinion tax returns "shouldn't be subject to subpoena, because then some will lie on their tax forms to thwart creditors".
Nothing stops one from requesting a tax return at a debtor examination, and if your judgment debtor brings them, it is ok for one to copy or inspect. However if your judgment debtor or their lawyer says "that is privileged info, you cannot have it", you will have to get around this problem.
A first workaround is a request for alternate information, for example W2s and paycheck stubs; or getting your judgment debtor to voluntarily sign a 4506-T form. The 4506-T form permits you to obtain a copy of another person's tax return. One way to persuade your debtor to sign your 4506-T form, is if you could have it as a requirement for settling in a payment agreement, or another kind of settlement.
If you manage to get a 4506-T form signed, it is always much quicker to order a transcript (summary) of their tax return, than to try to get an actual copy of their return. And if the judgment debtor's return was e-filed, only a transcript of their tax return will be available.
What if your judgment debtor used an accountant to complete their taxes? I am not a lawyer, and my opinion is that a tax preparer's worksheet and notes are discoverable. I also assert a accountant's copy of the debtor's tax returns are discoverable, because of The Internal Revenue Service Restructuring and Reform Bill of 1998 (HR 2676). This bill introduced a very limited confidentiality privilege to non-lawyers. Internal Revenue Code Section 7525(a)(1) 26 USC 7216, includes section (B): "pursuant to an order of a court". That requirement for an order of the court (in my opinion) is met when you have served a court-endorsed debtor examination which includes a request for documents for a tax returns. (See http://www.law.cornell.edu/uscode/text/26/7216).
When the debtor or a 3rd-party accountant, or their lawyer(s) objects - showing the judge printouts of the cites above, might not work, however it is worth trying.
If those work arounds don't get you what you want, maybe you may find a copy of the judgment debtor's tax return by subpoenaing paperwork of another lender, for example a vehicle or large equipment dealer, or a mortgage lender. Their files occasionally include previously requested copies of the judgment debtor's income tax returns.
Certain "clever" individuals hide some of their claimed income on tax returns submitted to the Internal Revenue Service, to try to paying less taxes, and then includes everything on financial documents submitted to lenders, in hopes of obtaining the loans they want. Finding out about this gives you a more accurate idea about their actual assets (such as unreported non-interest bearing accounts, cash income, etc.) When you discover this type of situation, you're also probably discovering tax fraud and/or mortgage or bank fraud. There may be a possibility that finding this, and asking your debtor about this at court, will get their attention, and may lead to a settlement.
