Unreported Income (IRS): CPA Liability
Filed under: IRS, irs tax audit, tax preparer, unreported income
The IRS has a new method for identifying returns with a high probability for unreported income (i.e., Unreported Income Discriminate Index Function (UI DIF)). Unreported income is both civil tax fraud and criminal tax evasion.
Taxpayers who have unreported income may be subject to up to 6 years in prison, 100% penalties and fines, and expose their accountants to civil and criminal liability.
1. Statutes of Limitations
a. Civil Tax Fraud: No statute of limitations on assessment (tax can be assessed at any time)
b. Criminal Tax Evasion: For crimes, the statute of limitations is either 3, 5 or 6 years, only on the prosecution of the crime (i.e., tax evasion, not the assessment of tax owed)
2. Burdens of Proof
a. Civil Tax Fraud: “Clear and Convincing Evidence”
b. Criminal Tax Evasion: “Beyond a Reasonable Doubt”
3. Penalties/Fines
a. Civil Tax Fraud
i. Fraudulent Failure to File Tax Return: (IRC §6651(f))
ii. Fraudulent Tax Return Filed: (IRC §6663(a))
Maximum Penalty: 75% of tax due
iii. Failure to Pay Tax:
Shown on Return (IRC §6651(a)(2)),
Not Shown on Return (IRC §6651(a)(3))
Maximum Penalty: 25% of tax due
b. Criminal Tax Evasion
i. IRC §7201: Evade Tax
Fine: $100,000 (individual) $500,000 (corporate)
Imprisonment: not more than 5 years (or both fine and imprisonment)
ii. IRC §7203: Failure to File or Pay Tax
Fine: $25,000 (individual) $100,000 (corporate)
Imprisonment: up to one year (or both fine and imprisonment)
As a tax preparer, if a client has unreported income:
1. What is your liability re: IRC §6694 preparer penalties?
2. If you advise the client to report the income, do you prepare the tax return, or advise the client to engage an attorney to hire a CPA to prepare the tax return (for attorney-client privilege)?
3. If you advise your client to file or amend a tax return, is it a voluntary disclosure with no criminal liability? Is there any criminal liability for you?
PE shops escape tax man this year, but he’s coming
PE shops escape tax man this year, but he’s coming.
“Rangel’s $1 trillion ‘mother of all tax reform bills’ is close to seeing light of day so that long battle for next year can begin.
All indications are that a controversial bill to tax private equity carried interest as regular income will have to wait until 2008. But for lawmakers and corporate governance watchdogs, carried interest is just the start of a campaign to make life miserable—or at least more expensive—for the private equity crowd.
The bill would increase the current 15% tax on carried interest to as much as 35% for private equity firms, venture capitalists, real estate trusts, hedge funds and numerous oil, gas and commodity investment vehicles.”
See link above for complete article.
Surviving the IRS Audit
“Most of us manage to get through every tax season relatively unscathed, but others are not so lucky. Nothing strikes fear and panic in a taxpayer’s heart like the prospect of a tax audit . What would you do if the IRS picked your tax return for an audit? Here we look at what you can do to prepare for an audit and what kind of penalties you can expect if you’ve underpaid on your taxes. We also answer the question every taxpayer ponders at least once in his or her lifetime: what are the odds that you’ll get singled out for an audit?”
Complete Article can be found here:
http://www.ibtimes.com/articles/20070830/irs-audit.htm
IRS turns to computers to choose who gets audited and who doesn’t
“Taxpayers audited by the IRS aren’t selected randomly by humans any longer. They’re chosen methodically by computers looking, line by line, for irregularities in tax returns. An Internal Revenue Service (IRS) audit can make even an honest and thorough taxpayer worried. In fact though, an IRS audit is simply a review of your tax return to determine how accurate it is.”
Complete article can be found here:
http://www.arcamax.com/consumernews/s-215471-609045
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