GUILTY UNTIL PROVEN INNOCENT

With the IRS you are guilty until you prove yourself innocent. The following case is a good example of this. The taxpayer could not prove that two deposits were not income and so therefore the IRS and the court determined that they were income. Don’t forget… “documentation, documentation documentation.”

The IRS assessed additional taxes based on two bank deposits made to the taxpayer’s business account. The taxpayer claimed that the deposits were either proceeds of insurance, borrowed funds or transfers from a savings account, but did not specify the source of the two checks. The taxpayer provided no evidence to support any of these theories as to the source of the funds. The court held that the IRS determination that the deposits were income was not refuted; therefore, the deposits were taxable income. An accuracy penalty was assessed and approved because the taxpayer failed to provide any reasonable cause for the failure to include the amounts in income. Wright v. Comm’r, T.C. Summary Op. 2010-50.