Badges Of Fraud

When reviewing tax returns and conducting audits, the IRS looks for certain transactions or omissions that indicate possible deception or fraud on the part of taxpayers. Some of these “Badges of Fraud” are listed below.

Daniel Rosefelt & Associates, LLC, Attorney & CPA is a team of highly experienced tax professionals that solves serious tax problems, including alleged tax fraud, failure to file tax returns and failure to report income. We take a comprehensive approach to solving such problems and will work diligently to achieve the best possible outcome for you.

If you have received an audit letter or have questionable items on tax returns, you need knowledgeable legal counsel as soon as possible. Call us today at 301.656.4424.

Badges of Fraud – Income

  • Omissions of specific items where similar items are included
  • Omissions of entire sources of income
  • Unexplained failure to report substantial amounts of income determined to have been received
  • Substantial unexplained increases in net worth, especially over a period of years
  • Substantial excess of personal expenditures over available resources
  • Bank deposits from unexplained sources substantially exceeding reported income
  • Concealment of bank accounts, brokerage accounts and other property
  • Inadequate explanation for dealing in large sums of currency or the unexplained expenditure of currency
  • Consistent concealment of unexplained currency, especially in a business not calling for large amounts of cash
  • Failure to deposit receipts to business account, contrary to normal practices
  • Failure to file a return, especially for a period of several years although substantial amounts of taxable income were received
  • Covering up sources of receipts by false description of source of disclosed income and/or nontaxable receipts

Badges of Fraud – Expenses Or Deductions

  • Substantial overstatement of deductions
  • Substantial amounts of personal expenditure deducted as business expenses
  • Claiming fictitious deductions
  • Dependency exemption claimed for nonexistent, deceased or self-supporting persons
  • Loans of trust funds disguised as purchases or deductions

Badges Of Fraud – Books And Records

  • Keeping two sets of books or no books
  • False entries or alterations made on the books and records; backdated or postdated documents; false invoices, applications, or statements, other false documents or applications
  • Failure to keep adequate records, concealment of records or refusal to make certain records available
  • Variances between treatments of questionable items on the return as compared with books
  • Intentional under- or over-footing of columns in journal or ledger
  • Amounts on return not in agreement with amounts in books
  • Amounts posted to ledger accounts not in agreement with source books or records
  • Journalizing of questionable items out of correct amount
  • False receipts to donors by exempt organizations

Badges Of Fraud – Allocations Of Income

  • Distribution of profits to fictitious partners
  • Inclusion of income or deductions in the return of a related taxpayer, when difference in tax rates is a factor

Badges Of Fraud – Conduct Of Taxpayer

  • False statement, especially if made under oath, about a material fact involved in the examination
  • Attempts to hinder the examination; for example, failure to answer pertinent questions, repeated cancellations of appointments or refusal to provide records
  • The taxpayer’s knowledge of taxes and business practices where numerous questionable items appear on the returns
  • Testimony of employees concerning irregular business practices by the taxpayer
  • Destruction of books and records, especially if just after examination was started
  • Transfer of assets for purposes of concealment or diversion of funds and/or assets by officials or trustees
  • Patterns of consistent failure over several years to report income fully
  • Proof the return was incorrect to such an extent and in respect to items of such character and magnitude as to compel the conclusion the falsity was known and deliberate
  • Payment of improper expenses by or for officials or trustees
  • Willful and intentional failure to execute plan amendments
  • Backdating of applications and related documents
  • Making false statements on EP/EO determination letter applications
  • Use of false Social Security numbers
  • Submission of false Form W-4
  • Submitting a false affidavit
  • Attempts to bribe the examiner

Badges Of Fraud – Methods Of Concealment

  • Inadequacy of consideration
  • Insolvency of transferor
  • Assets placed in other names
  • Transfer of all or nearly all of debtor’s property
  • Close relationship between parties to the transfer
  • Transfer made in anticipation of a tax assessment or while the investigation of a deficiency is pending
  • Reservation of any interest in the property transferred
  • Transaction not in the usual course of business
  • Retention of possession
  • Transactions surrounded by secrecy
  • False entries in books of transferor or transferee
  • Unusual disposition of the consideration received for the property
  • Use of secret bank accounts for income
  • Deposits into bank accounts under nominee names
  • Conduct of business transactions in false names

The penalties for tax evasion can include fines and possible jail time, and when the IRS spots these and other Badges of Fraud, it takes action. You need a team of experienced tax lawyers on your side.

Daniel Rosefelt & Associates, LLC, Attorney & CPA has the experience, knowledge and advocacy skills to handle the most difficult tax problems. We will vigorously represent you every step of the way.

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To request a consultation about your case, call Daniel Rosefelt & Associates, LLC, Attorney & CPA or contact us online. We serve clients around the world from our offices in Bethesda, Maryland.