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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16547
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I know of a person "J.D", resident in California, who owns

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I know of a person "J.D", resident in California, who owns an incorporated company in California, of which he is the only owner.

J.D omitted several hundred thousand dollars in gross receipts from his 2007 and 2008 business tax returns: he omitted about 400K in 2007 (return filed 2008) and 300K in 2008 (return filed 2009).

As the sole proprietor J.D receives a salary of around 35K from his company.
He declares this amount as his income in his personal tax returns.

Business check copies and bank statements show that his personal expenses are paid by business (including family vacations, personal lawyer, child care provider, home, designer clothes, etc.): at least 40K to 50K each year.

J.D declared in a signed legal document that he has gross earnings of 35K from his business and, in addition, nontaxable perquisites paid through his business of $45K.

While he had no money in 2005, J.D. bought a home with 150K down in 2009.

My questions:
Is this tax evasion? If so, what consequences would J.D. likely face?
What is the statute of limitations? 6 years?
If somebody reports this to the IRS (e.g. form 3949-A), would the IRS just ignore it, would there be any consequences?
What kind of specialist who can advise about this?

MyVirtualCPA :

Thank you for your question, and thank you for using JustAnswer.com.

MyVirtualCPA :

The intentional omission of income from your tax return is tax evasion, and there is no statute of limitations on intentional omissions of income. The IRS can come back at any time, assess tax, interest, and penalties and pursue criminal charges.

Customer:

Thank you. However if nobody does anything, it is very unlikely that the IRS takes any action against J.D. What kind of specialists can advise about making sure that actions are taken?

MyVirtualCPA :

Well, you start with making the inquiry to the IRS. And, it would help if you actually call the IRS and speak with a person there.

MyVirtualCPA :

Tax on $700K is no small change, and it's worth pursuing. A revenue agent will be very willing to investigate the claims.

Customer:

Do you know of any specialists (or type of specialists) who can assist with this process (for hire)? I don't think regular tax preparers would do this kind of work.

MyVirtualCPA :

I don't think an outside professional will help with this, I think it's just a matter of finding the right person at the IRS

MyVirtualCPA :

You can certainly ask a tax preparer for help but as you said regular preparers may be reluctant to help with this sort of thing.

MyVirtualCPA :

http://www.irs.gov/Individuals/How-Do-You-Report-Suspected-Tax-Fraud-Activity%3F

MyVirtualCPA :

There's a link on how to report suspected tax fraud activity

MyVirtualCPA :

Each count of tax evasion can bring up to 5 years in federal prison and a fine of $250,000

Customer:

I know that page. I heard about companies who help with reporting mega-tax fraud (e.g. $2m). I was hoping that you could point me to somebody in the lower-amount range. I would like to hire somebody (e.g. ex-IRS) who can push this through. (You just answered my other question about consequences - thanks.)

MyVirtualCPA :

You would have to call around and ask different firms, as I know of no such firms for smaller scale tax fraud

Customer:

I can probably just contact an ex-IRS tax attorney, and see. Thanks for your help.

MyVirtualCPA :

Is there anything else I can assist you with?

MyVirtualCPA :

Have I provided you with excellent service tonight?

Customer:

Yes. Thank you.

Megan C and 2 other Tax Specialists are ready to help you