Investigatory procedures Tax evasion in the United States

1 investigatory procedures

1.1 net worth , cash expenditure methods of proof
1.2 bank deposit cash expenditure method
1.3 whistleblower program

investigatory procedures

the irs may carry out investigations determine correctness of tax return , collect necessary income tax, including requiring taxpayer provide specific information such books, records, , papers. irs whistleblower award program created assist irs in obtaining necessary information. while these investigations can lead criminal prosecution, irs has no power prosecute crimes. irs can impose monetary penalties , require payment of proper tax due. irs performs audits on suspicion of noncompliance has historically performed randomly selected audits estimate total noncompliance; former audits have higher chance of noncompliance.

net worth , cash expenditure methods of proof

under net worth , cash expenditure methods of proof, irs performs year-by-year-by-year comparisons of net worth , cash expenditures identify under reporting of net worth. while net worth method , cash accrual method may used separately, used in conjunction 1 another. under net worth method, irs chooses year determine taxpayer s opening net worth @ year’s end. provides snapshot of taxpayer s net worth @ particular point in time.

the snapshot includes taxpayer’s cash on hand, bank accounts, brokerage (stocks , bonds), house, cars, beach house, jewelry, furs, , other similar items. irs learns these items through thorough , in-depth investigations, casing suspected fraudulent taxpayer. in addition, irs assesses taxpayer’s liabilities. liabilities include expenses such taxpayer’s mortgage, car loans, credit card debts, student loans, , personal loans. opening net worth critical point @ irs must assess taxpayer s assets , liabilities. otherwise, net worth comparison inaccurate.

the irs evaluates new debts , liabilities accumulated in next year, , assesses taxpayer’s new net worth @ next year’s end. in addition, irs reviews taxpayer’s cash expenditures throughout tax year. irs compares increase in net worth , cash expenditures reported taxable income on time in order determine legitimacy of taxpayer’s reported income.

the net worth method first used in case of capone v. united states. cash method approved in 1989 in united states v. hogan.

bank deposit cash expenditure method

first approved eighth circuit in 1935 in gleckman v. united states, bank deposit cash expenditure method identifies tax evasion through review of taxpayer’s bank deposits. method of investigation focuses on whether taxpayer’s total bank deposits throughout year equal taxpayer’s reported income. method appropriate when majority of taxpayer’s income deposited in bank , expenses paid check.

this method commonly used surveillance of tipped employees , combined statistical analysis determine tipped employees actual wages are. information gathered through method successful when credibility of tipped employees can destroyed. method used less tipped employees because irs negotiates hotels or casinos, largest employers of tipped employees, identify tip estimate. if tipped employee reports minimal amount agreed upon, not questioned irs. however, recommended corroborating other methods of proof. given uncertainty of method, method not used in criminal prosecutions guilt must found beyond reasonable doubt.

whistleblower program

in addition methods of proof irs has developed, tax relief , health care act of 2006 created irs whistleblower office, allows anonymous whistle blowers receive 15 30 percent of recovery irs comes @ least $2 million including penalties, interests , other monies collected government. whistle blower program seeks information based on evidence , analysis can provide solid basis further investigation rather speculation , hearsay.

the program designed provide incentive ordinary citizens inform on tax cheats. program provides far greater incentives whistle blowers previous programs because under prior programs government not required compensate whistleblowers. under program, taxpayer may file lawsuit in court if or not receive deserved award.