The federal government is very serious about tax crimes. Every taxpayer (individual or organization) should watch out for suspicious activities that might arouse suspicions of tax evasion. Below are some of the telltale signs that might make the Internal Revenue Service (IRS) suspicious of your tax reporting.
Large Deduction Claims
Some people use or try to use large deduction claims to avoid paying taxes. For example, a business in a neighborhood affected by a natural disaster can make disaster-related claims even if they weren't affected by the disaster. The IRS is well aware of this and has grown suspicious of such claims over the years. This means you can arouse the IRS's suspicions if you make a large deduction claim, even if your claim is genuine.
Lifestyle vs. Return Mismatch
The IRS expects your lifestyle to match your tax returns; anything less than that will arouse suspicion. Say you have expensive multiple cars, you own multiple real estate properties, but your tax returns contain minimal income returns. The IRS might suspect that you have other hidden sources of income and come after you.
Expenses deduction is another method people use to fraud the IRS. Suspicious expenses will get the IRS running to you for an audit. For example, even though many businesses have entertainment budgets for their clients and employees, the budget should be reasonable since it is not the core service of the business. Therefore, a business that has an unusually large entertainment expense will be suspect to the IRS.
Lots of Cash Receipts
The IRS knows that cash payments rarely leave an electronic trail, which means cash is easier to hide than other forms of payments. Therefore, expect close scrutiny by the IRS if you are receiving lots of payments in cash.
Lastly, you should also expect close scrutiny from the IRS if you deal with lots of independent contractors as opposed to employees. This is because employees attract payroll tax, which some people try to avoid by hiring independent contractors. Therefore, if you mostly use independent contractors, the IRS will want to confirm that you have classified the workers correctly and you are not using them to avoid tax.
Hopefully, you will shake off any suspicions of tax crimes and you won't face any tax-related criminal charges. If you do get charged with such crimes, however, consult an attorney at the earliest possible opportunity. These cases tend to be complicated and require a professional defense, such as that which is available at Maruca Law.