Taxes: You’re guilty until you prove yourself innocent.
That’s the way it works with the Internal Revenue Service. You have to be able to prove the numbers on your income tax return. If you can’t, the IRS auditor will pick a number and it’s up to you to prove them wrong.
It sounds unfair, doesn’t it?
Of course it does, but that’s the way the law works in the U.S. In normal criminal cases, you’re presumed innocent until the government proves you guilty. In tax cases, it’s the other way around.
Taxpayers run into trouble when they don’t have documentation to support the numbers on their tax return. What if the IRS believes a business has unreported income? Maybe the company has bad documentation. The IRS may use bank records to prove their case, assuming that all of the deposits are revenue. They may make an assumption that additional revenue was not deposited and was concealed. They have all sorts of methods to calculate what they think these numbers are.
That’s where a forensic accountant comes in. She can help shoot holes in their theories and their methods. Things get complicated quickly, and you need an expert who is well-versed in the methods the IRS uses to calculate income.
I help attorneys evaluate the numbers in tax cases (either civil or criminal) and challenge the government’s numbers.
In this video, Tracy Coenen briefly defines and audit and how many people are being audited by the IRS. (Hint: A very low number of people are being audited, and people with higher incomes are much more likely to be audited. Watch the video to find out the numbers.)
With the end of the year approaching, it’s a good time to talk about some tax mistakes that can be very painful. With a tax code as huge and as complex as ours in the United States, there are countless mistakes we can make in preparing and filing our taxes. These are just a few that you might have the misfortune of making.
Report all income – This includes the income on W-2s from all of your jobs, as well as income on 1099s that you may have earned as in independent contractor. Did you know that you need to report all of your income even if you don’t receive a 1099? While a company only has to provide a 1099 if they paid you $600 or more, you’re still required to report the income even if it’s less than that. Or if a company forgot to send you a 1099, you still have to report the income.
Use a tax preparer – This is especially important if your taxes get complicated. Buying a rental property, moving to a new state, and having investments are all common things that can make your tax filing more difficult than it was before. The tax laws are constantly changing, and it makes sense to work with someone who is on top of those things. (But don’t go to H&R Block or other “big name” tax preparation places.)
Now is the time when everyone scrambles to get their tax situation in order. There are some tax moves you should make BEFORE the end of the year, so act now.
I was interviewed in 2008 on CNBC about year-end tax planning. The advice is still relevant today, and each one of these tips still applies. These are some really great things you should do before December 31.
Government investigations of white collar crimes almost always have one thing in common: They rely heavily on the analysis of financial information. Often, this includes combing through bank statements and credit card statements, as well as scrutinizing accounting records.
Some people think that analyzing this kind of data is simple. It seems like it is only a math exercise in which we’re checking dollar amounts and verifying the addition and subtraction. But there is much more involved, and it gets exponentially more complicated (pun intended) when there are large volumes of data.
Expertise in financial and accounting crimes is necessary to fully understand the issues and the potential criminal or civil charges that the government brings against a company or individual. To properly defend such a case, it is necessary to have a forensic accountant involved to help evaluate the data and the issues the government will raise.Continue reading
You are being audited. These are some of the most dreaded words an individual or business will ever hear from a state or federal tax auditor. They invoke fear, panic, and sometimes anger.
Most of all, they create a need for documentation. Every number could be scrutinized. That means documentation must be produced to support the amount of each expense and the business purpose of the item.
Some of us are meticulous in our documentation, but if you are like most taxpayers, you have pockets of misplaced or destroyed data. Even worse, you may be in a situation where documentation was completely destroyed by a fire or flood. If you don’t have documentation, does that mean your deductions are automatically disallowed? Not necessarily.Continue reading
Tax returns can be one of the most important pieces of information a forensic accountant evaluates in a divorce case. Of course, there are other very important financial documents, but income tax returns provide summary information about of lot of financial issues, including income, expenses, and assets. I typically recommend reviewing three to five years of tax returns, but the further you can go back, the better the picture you will get of the personal or business finances.
If a party claims that personal or business tax returns are unavailable for any reason, consider requesting the records directly from the Internal Revenue Service. This requires the consent of an individual or business owner, and can be done with Form 4506, Request for Copy of Tax Return.
On the business side, it will be important to compare the financial statements with the income tax returns. Because of differences in accounting rules and the tax law, numbers for the same period may differ between the financial statements and tax returns. Depreciation is one example of a line item that typically differs between the financial statements and income tax returns. The expert should investigate any differences between the financial statements and tax returns, and refer to the tax laws to confirm whether such a difference is legitimate.
Some of the key information that may be found in the income tax returns includes:Continue reading
Income tax returns and supporting information such as W-2s and pay stubs are the most common and basic documents which evidence income in family law cases. This article discusses the sources of income that are disclosed on a personal income tax return (Form 1040), and some ways the items can be evaluated to search for hidden income and hidden assets.
Wages – The figures reported on the income tax return should be matched to the W-2. The W-2 and the pay stubs will provide additional information on the employers, pay rates, total pay, certain benefits, and taxes withheld. Additional analysis may include tracing bank deposits to ensure that all wages were used for the benefit of the family.
Taxable Interest and Tax Exempt Interest – These items of income must be considered when calculating income available for support. They are also important because they can point to bank, investment, and brokerage accounts that may not have been specifically disclosed in the family law case.
You need your personal taxes done and they’re not that complex, so you think you’ll just run right over to H&R Block, Jackson Hewitt, Liberty Tax Service, or some other tax preparation franchise. It’s easy and they must be good or they wouldn’t have so many locations and be in business so long, right?
Wrong. The fact of the matter is that you’re taking a big risk if you have your taxes done at one of the large tax return sweatshops or a similar smaller service. These companies have a few major drawbacks that most consumers are unaware of:
The prices they charge are generally too high. Even the simplest of tax returns can cost you well over $100, and that type of fee is just too much. Add in some things like a rental property or an in-home business, and watch your tab for the tax return run up fast.
The name of the game at the tax return franchises is turning out as many tax returns as fast as they can, at the lowest possible cost. This means that most of the employees are inexperienced data entry clerks who really know next to nothing about the tax law. They couldn’t spot an opportunity or a problem with your tax situation if their life depended on it. Do you really want to risk having your taxes prepared by someone who took a day-long class to learn how to enter data into a computer program?
Why should a taxpayer use the services of a forensic accountant when being audited or under criminal investigation? Tracy Coenen talks about the expertise a forensic accountant can bring to the case, specifically in evaluating the methods used by the IRS for determining income.