An autobody shop owner also owned a large home, rental properties, and numerous cars and trucks, yet he reported taxable income in 3 years of $114, $0, and $0. He was audited. The Tax Court found he fraudulently underreported his income and imposed stiff penalties (75% of the tax underpayment) in addition to the taxes owed (Robert S. Clark v. Commissioner; No. 23074-16; No. 13576-17; T.C. Memo. 2021-114). When taxpayers fail to keep records of income and expenses, the IRS may use a bank deposit analysis to compute unreported income, which is what happened here. The lesson: keep good books and records to properly report all income. #IdeaoftheDay
Upcoming Webinar: October 7, 10:30 AM ET– Mastering Entrepreneurship — I’ll be presenting “Tax Tips for the Entrepreneur Post COVID” — Register here today!
