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You can't hide your indiscretions from the taxman

From Wednesday's Globe and Mail

They hide receipts, create fictitious business trips and develop a sudden passion for late nights at the office.

But even the most savvy experts in the art of adultery can't escape the secrets contained within their financial statements.

It's a lesson New York Governor Eliot Spitzer is learning under the glare of the public spotlight this week.

The bombshell didn't come to light as the result of blackmail or unbearable guilt.

Rather, it began at the U.S. Internal Revenue Service, where tax authorities had received reports from several banks about strange transactions made by the governor involving large amounts of money.

The high-profile case is a sobering example of how the paper trail we leave behind can come back to haunt us.

And the details spouses may try to conceal from each other can inadvertently be revealed when it comes time to pore over bank statements, credit card bills and receipts in preparing tax returns.

"We have very few secrets. We live in a surveillance society," said Paul DioGuardi, senior tax lawyer at DioGuardi Tax Law LLP and co-author of The Taxman Is Watching: What Every Canadian Taxpayer Needs to Know and Fear.

Nearly every major transaction leaves some type of trail. A husband who files his wife's tax return may stumble across an unexplained credit card charge to a motel room. A wife who opens her husband's mail from an accountant may see unusual expenses for flowers she never received.

In Canada, married couples submit tax returns separately, but it's not uncommon for secrets to come spilling out when accountants preparing returns ask questions about extravagant expenses. That's particularly true when a husband and wife are involved in business together, said Michelle O'Brien-Moran, partner of taxation at Meyers Norris Penny LLP.

"Whether it's trips to foreign places or excessive amounts spent on ... clothing [and] jewellery, what we've found is [the spouse is] eventually going to find out," she said.

Ms. O'Brien-Moran said she has been in her share of "uncomfortable" situations after a spousal secret was inadvertently revealed as a result of some of the personal questions that accountants need to ask.

"We definitely get involved, unfortunately, in a lot of marital troubles just because of the nature of what we do," she said.

Mr. DioGuardi said that spouses who are intent on keeping certain aspects of their lives secret from their significant others should visit their accountant alone. The particularly paranoid should hire a tax lawyer, who is bound by client confidentiality, and avoid spilling any salacious secrets to their accountant, who is required, in some instances, to report certain financial activities.

"You'd have to almost set up a separate operation," he said.

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