Unreported Income

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  • Burke
    Senior Member
    • Jan 2008
    • 7068

    #1

    Unreported Income

    I feel I need to have a heart-to-heart with a client about this subject. The numbers just don't add up. How do you all approach these conversations? No EIC involved. Does not qualify.
  • Dusty2004
    Senior Member
    • Dec 2009
    • 374

    #2
    Explain problem

    Originally posted by Burke
    I feel I need to have a heart-to-heart with a client about this subject. The numbers just don't add up. How do you all approach these conversations? No EIC involved. Does not qualify.
    Here is one example of what I have done. I had a painter who "had very little income for 3 years". So I asked him "how much is your rent, utilities, food, etc". Once I had all that I said "So your income after expenses is $5,555 but your rent alone is $4,800 - how are you paying your other bills?"

    Then I explained how he had to claim all his income or find a different preparer.

    Dusty

    Comment

    • BHoffman
      Senior Member
      • Feb 2008
      • 1768

      #3
      Originally posted by Burke
      I feel I need to have a heart-to-heart with a client about this subject. The numbers just don't add up. How do you all approach these conversations? No EIC involved. Does not qualify.
      I approach these conversations with the statement "The numbers just don't add up."

      Then, I tell them why and ask them to help me out with an explanation.

      Then, I keep real quiet and see what they say.

      Comment

      • gkaiseril
        Senior Member
        • Feb 2007
        • 567

        #4
        Also explain that the IRS can ask these same questions and look very hard a the past 2 years years and if they think he has purposely hide income, they can back even further and charge interest and penalties.

        Comment

        • ChEAr$
          Senior Member
          • Dec 2005
          • 3872

          #5
          One more technique is to is to ask client to bring in 12 months of bank statements for the year in question. If he looks incredulous, simply explain that that is what IRS would be asking for in an audit and you're JUST trying to keep him out of trouble; it's your job.
          ChEAr$,
          Harlan Lunsford, EA n LA

          Comment

          • DaveO
            Senior Member
            • Dec 2005
            • 1453

            #6
            Often there is a reason other than unreported income. Gifts from family, inheritance, live-in boyfriend or girlfriend can all explain the apperance of unreported income. I approach it much like BHoffman does. Then I explain my due diligence requirements and how many audits I do in a year. Most provide a good explanation or take the hint and just move on.
            In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
            Alexis de Tocqueville

            Comment

            • Burke
              Senior Member
              • Jan 2008
              • 7068

              #7
              I suspect his bank accounts would not tell the whole story. I just told him he could not deduct a $900+ expense because he had no receipt, he paid in cash, and did not know "where the guy is" to whom he paid it.

              Comment

              • Burke
                Senior Member
                • Jan 2008
                • 7068

                #8
                Originally posted by DaveO
                Often there is a reason other than unreported income. Gifts from family, inheritance, live-in boyfriend or girlfriend can all explain the apperance of unreported income. I approach it much like BHoffman does. Then I explain my due diligence requirements and how many audits I do in a year. Most provide a good explanation or take the hint and just move on.
                Right. I did not give all the details in my OP, but none of those things will apply here. There is one possibility, and I am going to ask about that up front before he realizes where I am going with this.

                Comment

                • Gretel
                  Senior Member
                  • Jun 2005
                  • 4008

                  #9
                  I have a clients with losses since over 10 years, it's a restaurant. Went through audits twice, once no change, the second one gave him more expenses since he forgot about all the credit card fees he paid.

                  He lives on loans and credit cards to have it going.

                  There can be a number of reasons, but the question what someone lives on always remains.

                  Comment

                  • luke
                    Senior Member
                    • Dec 2008
                    • 437

                    #10
                    Burke

                    this guy sounds like some clients that MOST of us have but dont really NEED?!
                    Take Harlan's advice...."Dont take no ..."

                    Comment

                    • Possi
                      Senior Member
                      • Mar 2006
                      • 1432

                      #11
                      I tell my clients....

                      ... it's not a felony to overstate your expenses...but it is a felony not to report your income...

                      Then, I shaddup.......

                      "I am proud to pay taxes in the United States. The only thing is I could be just as proud for half the money." Arthur Godfrey

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