Unreported Income

[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.

[Dusty2004]

Explain problem

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

[BHoffman]

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.

[gkaiseril]

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.

[ChEAr$]

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.

[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.

[Burke]

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.

[Burke]

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.

[Gretel]

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.

[luke]

Burke

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

[Possi]

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.......