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PENALTIES IMPOSED ON INDIVIDUAL WHO FRAUDULENTLY UNDERREPORTED INCOME

September 29, 2021

In consolidated cases, an individual fraudulently underreported income for the tax years at issue. The taxpayer owned an auto body shop, rental properties, a large home and numerous vehicles. The court found the IRS’s bank deposit analyses to be reasonable. An IRS revenue agent (RA) assigned to the case obtained most of the bank information through summonses after the taxpayer repeatedly failed to provide the same. The analyses showed significant unreported income. The taxpayer was liable for tax attributed to unreported income for Schedule C and Schedule E for the amounts reclassified as rental income.

Finally, the taxpayer was liable for a Code Sec. 6663 penalty for each tax year at issue. The taxpayer (1) knowingly attempted to evade his tax obligations; (2) provided inadequate records; and (3) failed to cooperate with the RA. The taxpayer had enough financial sense to run his own business for decades and actively attempted to deceive the RA.

See R.S. Clark, TC Memo. 2021-114, Dec. 61,932(M)

If you have questions on your tax compliance and possible liability for failure to properly report your income, please schedule a consultation with our attorney today.