Ira Smilovitz wrote:
- quote -

I guess my real point is this: If he'll lie to the
government, he'll not hesitate to lie to anybody,
prospective purchaser especially.

ChEAr$,
Harlan Lunsford, EA n LA
Sun Jun 4, 2006

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Harlan Lunsford" <hlunsford[at]BELLSOUTH.NET> wrote:

- quote -

I wouldn't run away at this point. I'd just insist on
negotiating any purchase price based on the data reported on
the tax return. After all, you know he's hiding income
(which you will value at $0), but it's less likely that he's
inflating expenses without receipts.

Of course, it's less likely that you'll be able to negotiate
a price that's acceptable to the seller since you won't be
paying anything for the unreported earnings.

Ira Smilovitz

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

mel wrote:

- quote -

Hmmm, a really good question.

Get him to show you three things.
1. his books for last three years, including copies of
invoices which you can then match up with......
2. bank statements, since good business practice is to
deposit all receipts into the bank.
3. Tax returns, both federal and state, for last three
years.

Now then. Suppose he says to you something like "The
figures on the tax returns aren't the total gross receipts;
after all, nobody reports....... !)

Run; don't walk, away.

ChEAr$,
Harlan Lunsford, EA n LA

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Dick Adams <rdadams[at]smart.net)> wrote:

- quote -

The 4506 (Request for Copy of Tax Return) has a space for
who to send the returns to, which is allowed to be a third
party. Get the tax returns he actually filed, directly from
the IRS.

Seth

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

"If the tax returns were prepared by a CPA, an EA, or a Tax
attorney, get written permission to talk to the preparer.
If the seller chooses to balk, take a walk! "

Except that would be a (technical) violation of Code sections
6713 and 7216. Just one more reason these code sections need
to be rewritten.

Moderator:
Asking for written permission to talk to someone's auditor
or tax preparer is a fundamental right in some cases and
a professional obligation in many cases.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

Dick Adams <rdadams[at]smart.net) wrote:
- quote -

Excellent point.

- quote -

One of my clients bought a business, and then later discovered that
the amount of income they said they received was $20,000 a year
more than they disclosed in their tax returns. When a dispute
arose, I noted to them that they either lied to us or to the IRS.
Of course, I said, if they lied to the IRS they must have told us
the truth and we wouldn't have anything to complain about.

I didn't have to drop the other shoe - they caved quickly after
that.

Stu

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

"mel" wrote:
- quote -

A Ouija Board? Else if they're presenting a self-prepared Form
1040 or 1120/1120S, you might tactfully ask they obtain an IRS
transcript to verify it. So easy these days to crank out a
modified copy using TurboTax. Another indicator is presentation of
even unaudited financial statements by an accountant for prior
years. This tends to indicate adequate records, or else that
service is a waste of money.

The IRS method is to observe standard of living. If you see
wealth, it may also be inherited or married to, though. But if you
see a trailer park, and a rusty pickup up on cinder blocks.... :-0

Another subjective observation is the business premises. A
business with cash flow to maintain a good-looking environment for
working and engaging customers, the net for a good family living,
may tend to support profitability as proffered.

Fred F.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

In article <11no2uca1m6l9de[at]corp.supernews.com> ,
Phil Marti <prm20871[at]verizon.net> wrote:
- quote -

And then there is a serious problem of "Is he giving you his
actual tax returns or bogus tax returns he prepared for the
purpose of selling the business?"

If the tax returns were prepared by a CPA, an EA, or a Tax
attorney, get written permission to talk to the preparer.
If the seller chooses to balk, take a walk!

About 30 years ago, I was considering investing in a
pharmacy with my then father-in-law. The seller
acknowledged that his tax returns were understated so
that he paid minimal taxes. As we left the store, I
turned to my first wife and said "If he'd admit lieing
to the government, why should I believe a word he says?"
We had an argument, but her father agreed with me.

Dick

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

Phil Marti <prm20871[at]verizon.net> wrote:
- quote -

That is, unless he was planning on selling the business
for a multiple of profits, in which case he might well
overstate them.

If he did it by neglecting deductions for some expenses,
it would even not be tax fraud.

Seth

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

mel wrote:

- quote -

Ask to review the business tax returns and/or books for the
past several years.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

"mel" <maris7[at]optonline.net> wrote:

- quote -

Since you posted this on a tax board, you probably already
suspect that his tax return would be a good source. Unless
he's in the side business of money laundering, you can bet
you won't find his profits overstated.

--
Phil Marti
Clarksburg, MD

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

How can I determine that the sales of a retail locksmith
business are what the seller of the business claims them to
be? Naturally, I am interested in the accuracy of the gross
and net profits before making a decision to buy.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >