1) You probably want to get earning transcripts (W-2
, 1099s) from the IRS for 2015 for both the business and the person.
2) The law
allows for taxpayer's oral testimony as evidence.
Refer to IRM 220.127.116.11.2, Oral Testimony, for complete discussion and documentation requirements.
Actually, the entire IRM 18.104.22.168 talks about what are considered as evidence.
3) We have to reconstruct income
and expenses, and the balance sheet item. Because your client and you both have to sign, and he is under investigation for financial crime, I have known people under criminal investigation went without filing
tax returns for over one decade. The return
today will become court's evidence tomorrow.
4) That is, the return preparer
has to have very good record to come up with the tax
return. Therefore, unless you are 100% sure the return is relatively true and real, don't do it and advice your client not to file. First, he is late already. Second, he has a good reasonable cause for failure to file. The FBI has taken all his book record and financial record. The tax law does not allow us
to file return based on "guessing" or "estimates". We can be considered as filing frivolous
tax return or things to that nature.
"The penalty for filing a frivolous tax return is $5,000. The penalty is applied to anyone who submits a tax return or other specified submission, if any portion of the submission is based on a position the IRS identifies as frivolous.Aug 22, 2016"
In sum, at one hand, I am saying that this is how we prepare a return without records; on the other, I am saying not to do it. Simply provide a reason. You cannot do it because records are ceased.
However, if he still have money to pay and you think that he may owe tax. There is no law preventing him to pay. Go ahead and pay the tax for 2016 2015 and 20172016.