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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2917
Experience:  Over 20 Years experience
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if someone is suspected of tax evasion, how far back can the

Resolved Question:

if someone is suspected of tax evasion, how far back can the irs audit that person's returns and income. how difficult would it be to prove the tax evasion (the person works for cash only and therefore doesn't report as much earnings as is truthful). and, how to go about reporting this person?
Submitted: 1 year ago.
Category: Tax
Expert:  R. Klein, EA replied 1 year ago.

R. Klein, EA :

Thank you for contacting me about your Tax issue. I will work hard to help you understand the issue clearly.

R. Klein, EA :

There is NO statute of limitations on tax fraud. The IRS can go back to 1917 if it wants. However, realistically, the IRS can only easily grab evidence from its files going back about 10 years.

R. Klein, EA :

Making a claim to the IRS that someone else is comiting fraud is how the IRS gets most of its tips. However, before the IRS starts an investigation into the alledged tax cheat, the IRS will evaluate the case to see if it is worth pursuing.

R. Klein, EA :

Since almost all claims of tax fraud are based on the assumption that the turning in of another person is based on revenge in most cases, the IRS doesn't take all claims seriously

R. Klein, EA :

Second, the IRS will evaluate whether there is much potential from the claim. Of course, some claims to the IRS are valid, but many have the potential to result in such a small recovery, that it isnt worth the time and effort to chase these folks

Customer:

so how to go about having the irs take the claim seriously

R. Klein, EA :

However, if you do turn in a tax cheat and you have VERIFIABLE WRITTEN evidence that you can submit with your claim, the IRS is likely to take such cases as a higher priority

R. Klein, EA :

If the person is just running a cash business and you heard him say "U take in 100K a month and pay no tax!", the IRS isn't interested because it would have a hard time verifying the claims

Customer:

what is considered 'verifiable written' evidence. the person takes all payment in cash.

R. Klein, EA :

If you do turn someone and it results in an IRS recovery, you are entitled to a portion as the whistleblower.

R. Klein, EA :

Sounds like exactly what the IRS is not interest in....your word against another taxpayer's

R. Klein, EA :

If the person buys in all cash and sells all cash, he does not leave a paper trail. However, this same person may buy things, like a fancy car, house, etc. The IRS can determine that a person without income could not afford these things, so they might investigate.

R. Klein, EA :

This is how drug dealers are busted for tax evasion. Secondary evidence.

R. Klein, EA :

In any case, unless you supply the IRS with evidence other than "Joe's income is all cash", IRS won't act or care.

Customer:

okay, yes that is exactly what seems to be happening. the person has a fancy car, custom house...but claims far less income on the tax return to support purchasing these assets. so how to alert the irs based on secondary evidence

R. Klein, EA :

I cannot tell you what evidence you need. That's a fishing expedition.

R. Klein, EA :

Unless you are his tax preparer who knows what is on his return, you have no evidence.

Customer:

okay, thank you!

R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2917
Experience: Over 20 Years experience
R. Klein, EA and 4 other Tax Specialists are ready to help you

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R. Klein, EA
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