Based on your experience, regarless of existing standing wiht the IRS, what is the average chance that the IRS will audit the books (individual revenue and expense items) of that LLP when a personal tax audit of an individual with K-1 income is conducted (e.g 1 in 10, 1 in 5, 1 in 3)
How does the IRS determine intentional vs. mistakenly? Doesn't every auditee say they didnt know, whether intentional or unintentionally?
I saw that statistic which can also be further borken out by wage classes which changed the chances from 1% all the way to 12%.
What I can hear from your comment is that the K1 number appears normal, the chances are low that the audit trail into the LLP books will further explored, no?
Do you know the answer to the second question?
Thank you. Will do. I am not doing this for myslef but on trying to help someone else. WIth that, I just remembered one follow up if you dont mind. Is it easy to say what amount is considered material when it comes to tax evasion? E.g. I doubt a $15 lunch for personal reasons but intentionally expensed is material whereas buying a boat with jet skiis for 500K would be and running it through the company (I am just make up examples) would be. And when would those civil charges become a viable consideration upon discovering fraud?
Thank you. This article is outstanding. And I appreciate your advice.
1) If you have any more such sources (rather too many then too few) which factually identify tax evasion consequences, past court decisions, and IRS examples of tax evasions that lead to civil or criminal investigation/prosecution, that would be absolutely fantastic. I need more information to support a my position.
2) I understand that an investigation of a company where personal expenses are deducted as an expense can result in civil penalties (75% penalty) and possibly criminal (imprisonment) consequences. Yet, the materiality question is still not clear to me. Is $100 material over the course of the year or $100,000 in order to trigger such ramifications?
3) In case company books are audited, couldn’t almost all expenses be argued to be business expense (football tickets ->game was attended with a client; car lease -> used for business purposes only; lake house rent -> client meeting; dinners - sales efforts; electronics - used in the office; cable bills - used for the office and work etc.), no? Would the IRS ask for supporting documentations of each expense item? And if so, what kind? e.g. names of people who attended the football game? Driving log of the car? Verification of the electronic items?
4) Last one could be a yes/no question. Could in any way medical expenses be argued to be business expenses e.g. prescription drugs or care services?
Thanks so much for the sources and detailed answers. I have been doing quite a bit of reading today as well utlizing your links to branch further out on various topics which helped me put quite a bit of puzzle pieces together. Your help is much appreciated.
I will have to go through your source in the morning and continue with the reading. I am still working but look forward to see if you can find anything on Westlaw in the interim, expecially with regard to case decisions on running personal expenses through the company. I know those resources are extremly expensive, thus, do you know of a free source or one with a free trial?
Hope to connect tomorrow.
I hope I am not bugging you too much. Your feedback is very helpful in finding my answers and I am glad I found you online