- quote -

These are the type of (non)taxpayers used by some
commentators to justify moving to a national sales tax.
Can't we help him? We would, of course, try to get him to at
least keep receipts in monthly envelopes and write his
income and expenses on the outside.

Assume John bought a house, cheap & long ago with seller
financing, greatly appreciated. Also, John owns business,
built up himself; mostly old equipment and day laborers, but
good work & reputation. He mostly lives hand to mouth, but
has built substantial net worth through asset appreciation.

Keeping it hypothetical, sometimes these type of clients
come as a favor to a very significant client, or, maybe it
is someone you like who does work for you personally (no
1099 required). One does not seek out this type of client,
but would we not be serving both John and the US Treasury by
filing something? What would you do?

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"KenB" <belsak_cpa[at]msn.com> wrote:

- quote -

Will "John Smith" ever amass any wealth, that is accumulate
real assets? If he is really living hand to mouth, then what
interest will the IRS ever show? If he does have significant
assets, then how were they acquired? As a Professional, are
you going to get paid before he has spent his latest pay on
merriment? I have wondered myself what attention the IRS
really gives to such situations. It certainly would not be a
net gain for the US Treasury.

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KenB wrote:

- quote -

The only problem I have with your approach is that you have
not attempted to estimate GROSS income. That number ~might~
be important for IRS purposes, and it would definitely be
important in my state where gross receipt (and likely sales)
taxes apply to GROSS business income.

But, my solution would be to resign the client. I'm not
interested in trying to help people who are unwilling to
help themselves. There are plenty of other opportunities out
there.

MTW

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"KenB" <belsak_cpa[at]msn.com> wrote:

- quote -

I believe the IRS uses a method very much like what you
propose to come up with income for people who keep no
records.

Wayne Brasch, CPA, M. S. Taxation

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Suppose John Smith is self employed and works mostly for
individuals, not businesses: Nonrecurring work, rarely
1099's, no bank account, no receipts, no invoices. He
genuinely wants to stay out of tax trouble, but John is
unable and/or unwilling to start documenting his life.

We professionals know this modus operandi is not unheard of,
and must accept that sometimes these folks are not trying to
avoid taxes but just don't want to complicate their life
with receipts, checks, payroll, etc: It's cash in, cash out,
eat, drink, sleep, and play. > From a compliance
perspective, they are the IRS's (and our) worst nightmare.

I know reconstructing taxable income is sometimes necessary
in response to an IRS request, but can we use this method
proactively, with a clear professional conscience, to help
John stay somewhere near legal? (He will never be completely
legal, but pressing for better records will only push him
into total noncompliance.)

At the least, I would determine John's average living
expenses, add anything else he may have saved or spent money
on, use that figure as representative of his net Schedule C
income (reconciled with any increase in his net worth),
prepare a Schedule C with only that number on it, complete
the tax return, and calculate and pay his regular and SE
tax, perhaps with a disclosure statement attached.

Short of replacing the income tax with a national sales tax,
can we help people like John Smith get (closer to) legal in
some manner consistent with an inability to keep records?
Any practical experience out there?

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