knichols[at]rfoods.com (Kerry Nichols) wrote:
- quote -

Committing fraud is not smart. Even worse is getting others
involved in your fraud, especially "potentially disgruntled"
employees. And if anyone asks for or offers a discount for
paying with cash, the reason better not have anything to do
with the IRS.

Be very nervous if anyone knows of your fraud, and be aware
that the IRS has lots of data that can also flag unreported
income or excessive deductions.

It is so much easier to sleep at night without worrying
about the unlimited statute for fraud. Best just to stick
with legitimate deductions and strategies to reduce your tax
liability legally. There is a difference between tax
avoidance and tax evasion (about 2-5 years).

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JSmith9543 wrote:

- quote -

Here's where the criminal case becomes a problem
<grin> --while you've seen and reviewed returns, do you have
copies of what the IRS shows are on file? Or just what
you've told him to sign and send in? Now, if you sealed the
envelope and actually mailed them, that's better <grin> , but
otherwise we have a suspicion (though one that's likely to
be correct).

- quote -

Which may be fine if he is the one who knows what they were
for. But that doesn't mean it isn't a bit suspicious to
find a charge to "Disneyland" labeled as office supplies.

That said, you do have to be careful that you don't get
drawn into a problem with your work. While the rules are
tougher if you are a CPA, anyone who knowingly produces
misleading financial information may have problems.

- quote -

Meals and entertainment are only allowed if documented as
required by Section 274(d). If the documentation doesn't
exist, then there's no deduction even if it is legitimate.
If it's documented, the question can still be raised over
whether it is truly an "ordinary and necessary" business
expense. And that's true of the research as well.

- quote -

Note, there's always a "fuzzy" line between what is an
allowable expense and what is not--Section 162 is rather
fuzzy in its wording. But, that said, some things clearly
fall outside the lines.

But, as I noted, the IRS has a limited budget for
enforcement so individuals who are defrauding the system may
get away with it for years. Of course, since there's no
statute of limitations on fraudulent returns, if they do get
caught their problems can be rather severe...

--
Ed Zollars, CPA
Phoenix, Arizona

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Yes- I've reviewed the tax returns. Also, when I do the
credit card reconciliation each month, boss has me
categorize all these expenses per HIS instructions. The
accountants don't have a clue........Does he think I'm so
dumb that I don't know what he's doing? Think he's pulling
the old scam - everyone is a client, so all M&E are allowed
since they are a potential client? and all purchases are
'research'? Funny how he only draws a salary of under $40k,
yet business makes an additional $100k?

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jsmith9543[at]aol.com (JSmith9543) wrote:

- quote -

He is getting away with it because he hasn't been audited.
If he is truly doing all of the things you list in this
post, then he is committing fraud.

The IRS has a fraud hotline. The number can be found on the
IRS website.

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JSmith9543 wrote:

- quote -

Well, there are probably two items here. First, how do you
know he is *really* doing this (as opposed to claiming to do
it)? Have you seen the actual tax returns that have been
filed? Did he tell you this is what is happening? Or do
you know these checks are being paid out of a company
account and you are presuming he is claiming the deduction?

One interesting fact is that some people actually lie about
being aggressive on their tax returns (apparently it sounds
macho to them <grin> ).

Second, assuming that, in fact, he is doing that--he gets
away with it because, frankly, the IRS does not have
anywhere near the resources to go after every case of such
abuse, or even be able to uncover them in the first place.

Now, that said, the big problem is that if the IRS *does*
show up at his door, he has no defense whatsoever if he is
doing what you say, and unless he gets extremely lucky and
draws a complete idiot of an agent, will be facing a huge
bill for back taxes, interest and penalties--if not even
facing a criminal investigation.

- quote -

Well, you can always call the IRS and tell them. However,
don't be shocked if they don't jump up immediately to go
after him. First, as I noted, they don't have the resources
to go after everything they know about, so it becomes a
priority issue.

Second, to be honest, "tips" quite often come to the IRS
(and other law enforcement agencies) as someone's method of
attempting to get revenge for some perceived wrong--and, in
a number of cases, have no basis in fact. So your claims
will be viewed with more than a bit of skepticism if you
don't appear to have a direct line to unequivocal evidence
of wrongdoing. The more your tip is based on your surmise
about what he "must be doing" or such, the less likely it is
to be acted on.

--
Ed Zollars, CPA
Phoenix, Arizona

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Well, my boss runs an S corp out of his home. Not only does
he get his mortgage paid through the company, but deducts
ALL his meals & ent. (50%) and his car (but no local
clients). He also Write's off all his grocery purchases,
writes off all personal phones in addition to business, and
writes off all groceries - HOW can he get away with this -
how can someone blow the whistle on this guy?

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Paul wrote:

- quote -

Well, the big problem involves IRC Section 280A(c)(6), which
prohibits deductions for rentals of your residence to your
employer. Couple that with the minor problem of the cases
that have held it's going to be difficult *not* to be
classified an employee if you perform services for the S
corporation (see Radtke and Spicer Accounting) and we have a
real problem.

Section 280A(c)(6) was passed in response to a victory in
Tax Court (sustained on appeal) many years ago by a Phoenix
CPA who was charging the firm in which he was an owner rent
for the home office that he maintained.

On top of that, we have the problem of the passive loss
regulations and the broad discretion granted in "lumping"
activities.

So, yep, I expect there might be some problems with this
setup, though I couldn't say for sure unless I saw your return.

--
Ed Zollars, CPA
Phoenix, Arizona

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My accountant last year told me my S corp could rent a
portion of my home and pay me rent. His theory is this
'passive' income would compensate for the loss I make after
depreciation on my rental property and effectively allow me
to take money out of the company tax free. The portion of my
home (10%) is actually my main office - I work here the
majority of the time remote supporting/programming for
clients based miles away. I keep a log of visitors which
include my employees and
accountant/bookkeeper/attorney/potential clients etc. So on
my 2002 personal tax return 10% of the house was not claimed
for (removed from) my house tax payments and claimed as a
rental property.

My new accountant this year says this is not allowed and
last years accountant was wrong (last year's accountant
retired).

Any opinions from CPA/EAs appreciated.

Paul

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