We may feel that if we do a cash sale, we really do not have to report it on our income tax return. We may feel the IRS will have no real chance of discovering this sale. While it is agreed that the IRS has many new untrained and unsupervised people in various areas, they do still have their best and most talented agents in tax collection. These agents work audit cases.

The IRS is highly skilled at investigating and discovering unreported income. 

One of the ways they do this is to examine your purchases. A new car, an expensive vacation, various hobbies that cost a lot to maintain are some of the things they look for.

Some have the idea I will start a business and then when it has tax troubles, I will just start a new business. Sometimes we put the business in a friend’s name but we really control the business. The IRS can pierce the corporate veil and access the business taxes, penalties and interest assessments to the one who actually controls the business, So don’t do this, you will not get away with it.

There are two different penalties that are associated with back taxes. 

One is a 20% accuracy penalty, and the other is the 75% fraud penalty. The IRS likes to invoke the fraud penalty. They make more money that way. Plus, either way you will be on the radar and the IRS will closely be examining your tax returns in the future. If you continue the cash sale no report method you may be liable for the fraud penalty and possible jail time. It happens all the time and I have examples in my newsletter  each month. Stop by and we can make you a copy or if you want, we can add you to our newsletter mailing list. Call Phil Garnett CPA at 360-623-1375 or email us at [email protected]