aRey and Carmen Martinez are not your tax clients, but they come to you with a question. They emigrated to the United States from Guatemala five years ago, and they have been self-employed in Chandler, Arizona, ever since. They have paid their Federal income and employment taxes in a timely manner.
An IRS auditor has been reviewing the couple's Form 1040 joint return from two years ago. The Martinezes believe that the auditor has found an understatement of the sales figures as reported on the returns for their store, Central American Delicacies. In confidence, Rey confirms that he purposely omitted $25,000 from the sales figure for that tax year, because of poor cash flow. Although Rey admitted to Carmen what he had done when they were preparing the Form 1040, she still signed the joint return.
What are the likely outcomes of the auditor's findings? In your answer, consider the Martinezes' exposure to tax, criminal, and other sanctions.