{"id":3537,"date":"2019-11-19T11:03:02","date_gmt":"2019-11-19T16:03:02","guid":{"rendered":"https:\/\/keysolutions.us\/blog\/?p=3537"},"modified":"2019-11-19T11:03:02","modified_gmt":"2019-11-19T16:03:02","slug":"irs-reconstructs-income-for-taxpayer-who-failed-to-file-tax-returns-for-five-years","status":"publish","type":"post","link":"https:\/\/keysolutions.us\/blog\/irs-reconstructs-income-for-taxpayer-who-failed-to-file-tax-returns-for-five-years\/","title":{"rendered":"IRS Reconstructs Income for Taxpayer Who Failed to File Tax Returns for Five Years"},"content":{"rendered":"\n

Lack of Adequate Records by Taxpayer Not a Deterrent to Preventing IRS from Reconstructing Taxable Income<\/strong><\/p>\n\n\n\n

<\/p>\n\n\n\n

Background<\/strong><\/p>\n\n\n\n

Francis Steffan Hayes [T.C. Memo 2019-147] failed to file his tax\nreturns for years 2005-2009 and paid no taxes during that time span. He claimed\nthat he did not maintain adequate records, refused to cooperate with the IRS,\nand would not present any records to assist the IRS in its audit. <\/p>\n\n\n\n

IRS Audit Steps to Reconstruct Income<\/strong><\/p>\n\n\n\n

To reconstruct his income, the IRS (1) summoned accounts in his\nname at Wells Fargo, PayPal and e-gold; (2) contacted his customers and vendors\nto determine his gross receipts; and (3) searched for income that he may had deposited\nelsewhere.<\/p>\n\n\n\n

The IRS also included in his unreported income checks and money\norders found in the accounts of two of his friends. Most of these checks had\nbeen addressed to Mr. Hayes or one of his business enterprises which he had\nendorsed over to his friends. Since Hayes had unfettered use of these funds\nwhen received, they were considered taxable to him. When customer records were\nsubpoenaed, the IRS discovered checks written to Hayes which the IRS included\nas taxable income to him. The revenue agent who conducted the examination then\nturned his findings to another IRS revenue agent who prepared substitute for\nreturns for Hayes. <\/p>\n\n\n\n

<\/p>\n\n\n\n

IRS Evidentiary Matter <\/strong><\/p>\n\n\n\n

Gross income includes all income from whatever source derived [IRC\nSec. 61(a)]. IRC Sec. 6001 states that taxpayers must keep adequate books and\nrecords from which their correct tax liabilities can be determined. When a\ntaxpayer fails to keep records, the IRS has discretion to reconstruct the\ntaxpayer\u2019s income by any reasonable means [IRC Sec. 446(b)]. <\/p>\n\n\n\n

The IRS was able to demonstrate to the court with its\ndocumentation that it had taken the necessary evidentiary steps to reconstruct\nHayes\u2019 income and allowing him certain expenses. At this point, the burden of\nproof shifts to Hayes to prove (by a preponderance of the evidence) that the\nIRS\u2019 determinations are arbitrary or erroneous. <\/p>\n\n\n\n

Taxpayer’s Arguments Before the Court <\/strong><\/p>\n\n\n\n

<\/p>\n\n\n\n

Hayes represented himself in court and argued various variations on oft-rejected tax-defiance themes and that the returns prepared by the IRS were invalid. <\/p>\n\n\n\n

Tax Court’s Findings <\/strong> <\/p>\n\n\n\n

The court found in favor of the IRS. It stated that the taxpayer offered only meritless arguments against the IRS\u2019 imposition of additions to tax and failed to show any reasonable cause. <\/p>\n\n\n\n

Tax Planning Tip #1<\/strong>: <\/p>\n\n\n\n

The best and easiest way to prevail in an IRS audit exam is to have substantiation for the income and expenses shown in your return. <\/p>\n\n\n\n

<\/p>\n\n\n\n

If you would like to discuss your business or personal tax planning<\/a>, tax preparation<\/a> and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601<\/a> today to make an appointment at our Exton PA CPA office<\/a> to discuss your situation. You can also schedule a consultation at Click Here<\/a>. <\/p>\n\n\n\n

Copyright \u00a9 2019 Keystone Financial Solutions, Inc.  All rights reserved. <\/strong><\/p>\n\n\n\n

BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently<\/strong>. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information.<\/strong><\/p>\n\n\n\n

About F. Bryan Haarlander, EA, CTRS:<\/strong><\/p>\n\n\n\n

Bryan\nHaarlander is an IRS licensed Enrolled Agent and who owns and operates a\nspecialized tax services firm serving clients in the western suburbs of\nPhiladelphia, PA, which includes the cities of Chester Springs, Coatesville,\nCollegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia,\nPhoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks,\nChester,  Delaware, Montgomery and\nPhiladelphia Counties, as well as clients in Delaware, New Jersey, New York and\nthroughout the continental USA. <\/p>\n\n\n\n

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems. <\/strong><\/a><\/em><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Lack of Adequate Records by Taxpayer Not a Deterrent to Preventing IRS from Reconstructing Taxable Income Background Francis Steffan Hayes [T.C. Memo 2019-147] failed to file his tax returns for years 2005-2009 and paid no taxes during that time span. He claimed that he did not maintain adequate records, refused to cooperate with the IRS, […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[3],"tags":[132,69,73,63,33,34,21,64,71,31,72,66,23,41,65,32,214,40,39,137,104,67,68,38,70,151,37,36,35,150,42,28],"class_list":{"0":"post-3537","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-irs-tax-planning-ideas-tips-news","7":"tag-accuracy-related-penalty","8":"tag-audits","9":"tag-bankruptcy","10":"tag-bryan-haarlander","11":"tag-chester-county-cpa","12":"tag-exton-accountant","13":"tag-exton-cpa","14":"tag-f-bryan-haarlander","15":"tag-first-time-abatement","16":"tag-frank-haarlander","17":"tag-innocent-spouse","18":"tag-installment-agreements","19":"tag-irs","20":"tag-irs-tax-debts","21":"tag-irs-tax-payments","22":"tag-keystone-financial-solutions","23":"tag-nexus","24":"tag-offer-in-compromise","25":"tag-oic","26":"tag-pa-dept-of-revenue","27":"tag-pa-dor","28":"tag-partial-installment-agreements","29":"tag-penalty-abatement","30":"tag-philadelphia-cpa","31":"tag-reasonable-cause","32":"tag-tax-adviser-near-me","33":"tag-tax-blog","34":"tag-tax-expert","35":"tag-tax-planning","36":"tag-tax-professional-near-me","37":"tag-tax-resolution","38":"tag-west-chester-cpa","39":"entry"},"aioseo_notices":[],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9W9tf-V3","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/3537","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/comments?post=3537"}],"version-history":[{"count":13,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/3537\/revisions"}],"predecessor-version":[{"id":3550,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/3537\/revisions\/3550"}],"wp:attachment":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/media?parent=3537"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/categories?post=3537"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/tags?post=3537"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}