Accounting Articles > Ethics:

Overly-aggressive deductions can red-flag you and lead to fraud detection

The Internal Revenue Service has a fraud detection system which they are constantly refining.

They have never, to my knowledge, disclosed exactly how it works. This makes sense because if they ever told us exactly how it works, people would probably find a way to beat it.

What I have been told is that given your geographic location and the type of business that you are in, statistical analysis is done against all of the returns that are geographically significant to you in primarily your same business. If you have income, expenses, or positions taken on your tax return that are not similar to others during the analysis, then that portion of the return is red-flagged.

At this point in the fraud detection process, the return is sent to an individual at The Service. Their job is to make a determination. They can consider the red flag immaterial, and let it pass. They can send out a letter proposing a change to the return. At which point you would have the ability to substantiate the position.

Or the agent can recommend the return for Audit. At which point, you or your representative will be forced to explain and substantiate the entire return to an auditor.

Aggressive accounting or the use of overly aggressive deductions on a tax return is never advisable. The money that you will spend defending a loosing position, the time that you will spend loosing, the anguish, the sleepless nights, as well as the additional tax, interest and penalty will never be worth any tax savings that might be involved. Overly aggressive accounting should never be justified.

If you are looking for someone to perform overly aggressive accounting, then please call someone else. If you are looking for someone who will save you every dime in taxes that is legal while protecting you, your family, and your business, then please call us.

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Accounting Articles > Ethics:

Overly-aggressive deductions can red-flag you and lead to fraud detection

The Internal Revenue Service has a fraud detection system which they are constantly refining.

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