Tax Audits — Cash Businesses — Income or Sales Taxes
On the state level, a sales tax audit may be the starting point for at finding that income taxes have been understated. From sales tax adjustments, gross receipts, gross income, taxable income and both state and federal income tax are affected. More often than not, sales tax audits are directed at businesses in which large amounts of cash are taken in and the potential for undisclosed labor costs paid in cash and other expenses paid in cash or disbursements to owners is greater than usual, the restaurant industry being the most visible example.
The Internal Revenue Service has little tolerance for those who are in cash-based businesses and have long-standing, unmet compliance obligations. Many have not filed income tax returns personally or for their business for many years. The IRS may conduct an investigation of all bank and third party records to reconstruct gross receipts or may review the lifestyle of the person who has failed to report income on income tax returns.
This type of investigation has no more potential to turn into a criminal investigation solely due to the cash business factor than any understated income case where returns were filed, but where assets have been acquired and are revealed to IRS only through its investigation [information is not voluntarily divulged, but phrases like "I forgot" are stated as if they will be exculpatory], or worse, false information is given, it is usually through criminal investigation that all measures required to identify assets and income sources will be taken.
Reporting on required income tax returns after an investigation has commenced is an admission of income which, if truthful and accurate, may help or not depending on the nature of the case. In any event, truthful reporting after the fact will not exculpate one from a finding that a willful attempt to evade was made by reason of failures to file - that horse is already out of the barn, so to speak.
As an example of what is meant by the above, assume a cash business and a lifestyle requiring funding to the tune of $1,000,000.00. Can one seriously believe that the IRS will let that go? No. Indeed, all of the power of the IRS will be behind the effort to put such a person in its poster campaign to eliminate fraud.
It is important, therefore, that any person in a cash business have a good accounting system. Keeping good records and filing timely, accurate returns will protect such a taxpayer against the likelihood that the IRS will become more suspicious because of the use of cash and question the income reported on the returns. If someone is under investigation by the IRS, speaking with an experienced tax defense lawyer can help ensure that rights to equal protection are protected.
Experienced Tax Lawyer
Boston Business Tax Defense Lawyer Theodore L. Craft, Attorney at Law and Tax Counsel, represents clients throughout the Boston area in criminal and civil tax cases. Theodore L. Craft, the firm's founder, has more than 35 years of tax law experience and a firm understanding the Internal Revenue Service Code. He uses his knowledge to put forth a comprehensive and thorough defense effort, resolving matters through both negotiations towards a plea agreement and effective representation during sentencing, or in the trial of a case.
When representing clients, Mr. Craft provides an objective and realistic evaluation of the case. Clients will be fully informed of their legal options based upon their particular situation. This enables them to make informed decisions about how they wish to proceed. Once an objective is determined, Mr. Craft will put together a practical but determined strategy aimed at achieving the Client's goal.
Contact an Income [Or Sales] Tax Audit Lawyer in Massachusetts
For a consultation to discuss your tax fraud defense needs, contact attorney Theodore L. Craft.