Question
Most Criminal Investigation cases involve proving that the taxpayer received income which was willfully not included on his or her tax return, or in the
Most Criminal Investigation cases involve proving that the taxpayer received income which was willfully not included on his or her tax return, or in the collection context, proving that the taxpayer willfully failed to pay taxes when possible to do so. The latter also requires that the IRS be able to reconstruct the taxpayer's income stream, often using indirect methods, such as using the taxpayer's bank deposits to determine the amount of income received by reviewing the deposits made to the accounts. This type of indirect income reconstruction is often used in civil fraud cases.
What do you think is fair game for the IRS to consider when reconstructing income?
Bank loan applications, court records from divorce proceedings, financial forms turned in bankruptcy proceedings - what should be reviewed by the IRS?
What defenses would you use if the IRS were trying to use these sorts of documents to reconstruct your client's income for a past year?
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