If you are small business owner with multiple bank accounts, you’ve got to be careful what you put where. The IRS may very well be looking over your shoulder. If the agency requires an audit, it could seek to show that you tried to evade taxes by improperly moving money among the different accounts.
A recent case in Southern California shows how wrong things can go. A certified public accountant was charged with filing false individual tax returns for several years. He was convicted and is facing a prison sentence of up to 12 years when he is sentenced next March.
The CPA had operated a not-for-profit agency in addition to his own accounting and financial services business. The nonprofit’s purpose was to help couples with financial problems avoid divorce by providing conflict resolution and financial counseling.
A worthy goal, to be sure. Unfortunately, prosecutors claimed that the CPA used the nonprofit foundation to hide money from the IRS and evade taxes. Indeed, they argued that the foundation did not actually take in any fees. It was, rather, essentially a vehicle for money laundering, the government asserted.
Eventually, evidence emerged that the CPA had used money from the accounts of both the business and the nonprofit to pay personal expenses.
This certainly doesn’t mean, however, that claims by the IRS or federal prosecutors that business or nonprofit accounts are being used to hide assets are accurate in every case. Sometimes there are simply accounting inaccuracies or other good faith mistakes that can be resolved during the audit process.
Source: “Money Laundering Is Dirty Business,” Accounting Web, Teresa Ambord, 11-5-12
Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our Irvine tax litigation page.