Having worked for the Internal Revenue Service for 10 years as an Instructor, there are a few acid tests Revenue Officers/Agents will use when working a taxpayers' case in their inventory. I also want to mention that when I was an instructor at the IRS, this was the first bit of instruction I would give to Revenue Officers coming on board. "Assume the taxpayers are lying." While this is a bit of an over statement on my part, you should know that as an IRS Agent, "taxpayers on a regular basis never tells the whole truth". While some taxpayers are as honest as the day is long, most are deceiving - and in that case you must dig further for the truth.
Therefore going into each case, these three acid tests are the fastest and quickest ways to spot liars and deceivers.
Three main tips:
1. Make sure the bank statements, tax return, financial statements all have a common thread of income. While there are many exceptions to this rule because of changing circumstances i.e. loss of jobs, life events, generally the money you deposit in your bank needs to tie into your current wages and your income information on your tax return. If this doesn't match up, you can bet your last dollar, IRS will investigate further to see if there may be hidden income. Also your cost of living should be in line with your wages. Exceptions exist such as you are borrowing money or living on savings.
2. IRS can and will pull credit reports to verify monthly payments you are making on other debt or assets. Many people who try to hide and/or deceive the government, will buy money order or cashiers checks. A smart IRS Agent will pull credit reports to verify your IRS financial statement with items found on your credit report.
3. IRS will check through credit reports for loan applications submitted to banks, car dealerships or other financial institutions to verify income and assets. IRS will compare the financial statement you gave the financial institution with the financial statement you submitted to IRS. It should match up; however this is rarely the case.
While this is not a comprehensive list, however, IRS knows where to look for lies and deception and they will find it.
Always turn in a truthful financial statement to the IRS.
Anytime you deal with the IRS, it is always wise to seek reputable professional counsel.
Michael D. Sullivan is a seasoned IRS tax expert. Learn more about Michael and the services he provides at http://www.freshstarttax.com/.
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