Selling an expensed business asset

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I bought a number of assets for my small business in 2016, some over $2,500 and some under $2,500.  I am taking advantage of the new safe harbor threshold enacted for 2016 and expensing the items that cost $2,500 or less instead of amortizing them.  My question is about what happens if I sell one of those expensed items in the future, specifically what happens if the item appreciates significantly (which I expect it will).  Will I owe a capital gains tax or ordinary income tax on the appreciated amount?  Thanks.

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If you have to ask, you're probably on the illegal and unethical side.

meade18 (Apr. 28, 2017 @ 10:46a) |

That's a question of fact which, if it comes to it, a jury decides. Juries decide on questions of intent all the time.  ... (more)

cestmoi123 (May. 01, 2017 @ 9:30a) |

I miss these type of threads. FWF used to be all about financial fraud.

DPG (May. 01, 2017 @ 11:51a) |

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You'll owe ordinary income tax up to the amount that you paid and deducted and capital gains on any amount beyond that.

The exact answer I wanted to hear. Thank you!

This is the answer you probably don't want to hear - but it can be more complicated than that depending on your business, type of asset, and how your business is taxed. Also remember that some states may not necessarily follow this safe harbor.

Knocks said:   My question is about what happens if I sell one of those expensed items in the future, specifically what happens if the item appreciates significantly (which I expect it will).  Will I owe a capital gains tax or ordinary income tax on the appreciated amount?  
  Aren't you over analyzing it? How would the IRS even find out if you sell a desk or chair that you previously deducted? 

atikovi said:   
Knocks said:   My question is about what happens if I sell one of those expensed items in the future, specifically what happens if the item appreciates significantly (which I expect it will).  Will I owe a capital gains tax or ordinary income tax on the appreciated amount?  
  Aren't you over analyzing it? How would the IRS even find out if you sell a desk or chair that you previously deducted? 

  correct. insist on cash. if there's no record, there's no sale to report.

My point exactly. That's what Craigslist is for.

atikovi said:   
Knocks said:   My question is about what happens if I sell one of those expensed items in the future, specifically what happens if the item appreciates significantly (which I expect it will).  Will I owe a capital gains tax or ordinary income tax on the appreciated amount?  
  Aren't you over analyzing it? How would the IRS even find out if you sell a desk or chair that you previously deducted? 

  There may be ways to evade taxes that are difficult for the IRS to find out, but this isn't one of them.

They audit your return you took the deduction on. They see you expensed a desk. IRS: "where's the desk now?" That's how they find out. Unless they suspect you of committing fraud or something like that they're unlikely to be looking through your cash flow on an audit. It's humorous that the ways people are suggesting to get away with this not only don't allow you to get away with it, but are most likely completely unnecessary if you want to get away with it.

Next thing I imagine you're going to say is how would they find out if the purchase year is closed. The answer to that is, when you buy your next desk and expense it they ask what you were using before you had that new desk. You respond you were using your old desk and then they discover you failed to report the proceeds on your return.

We're talking about assets that have the potential to appreciate way beyond what can be reasonably sold for cash. So the point is not to hide from the IRS but to minimize tax liability from the sale.

@marginoferror: Point taken on state taxes. I would probably establish residency in Florida prior to the big ticket sale event, if it ever comes along.

Knocks said:   We're talking about assets that have the potential to appreciate way beyond what can be reasonably sold for cash. 
  Any specifics you can mention? I'm trying to think of business assets that increase in value over time but couldn't come up with one unless it's an antique like a Chippendale desk for example.

marginoferror said:   
atikovi said:   
Knocks said:   My question is about what happens if I sell one of those expensed items in the future, specifically what happens if the item appreciates significantly (which I expect it will).  Will I owe a capital gains tax or ordinary income tax on the appreciated amount?  
  Aren't you over analyzing it? How would the IRS even find out if you sell a desk or chair that you previously deducted? 

  There may be ways to evade taxes that are difficult for the IRS to find out, but this isn't one of them.

They audit your return you took the deduction on. They see you expensed a desk. IRS: "where's the desk now?" That's how they find out. 

Next thing I imagine you're going to say is how would they find out if the purchase year is closed. The answer to that is, when you buy your next desk and expense it they ask what you were using before you had that new desk. You respond you were using your old desk and then they discover you failed to report the proceeds on your return.

  "oh I spilled a bunch of X all over the desk and had to junk it."

problem solved.

Are you buying cylinders of freon? I mean refrigerant?

dynonopi said:   
marginoferror said:   
atikovi said:   
Knocks said:   My question is about what happens if I sell one of those expensed items in the future, specifically what happens if the item appreciates significantly (which I expect it will).  Will I owe a capital gains tax or ordinary income tax on the appreciated amount?  
  Aren't you over analyzing it? How would the IRS even find out if you sell a desk or chair that you previously deducted? 

  There may be ways to evade taxes that are difficult for the IRS to find out, but this isn't one of them.

They audit your return you took the deduction on. They see you expensed a desk. IRS: "where's the desk now?" That's how they find out. 

Next thing I imagine you're going to say is how would they find out if the purchase year is closed. The answer to that is, when you buy your next desk and expense it they ask what you were using before you had that new desk. You respond you were using your old desk and then they discover you failed to report the proceeds on your return.

  "oh I spilled a bunch of X all over the desk and had to junk it."

problem solved.

  
So, let's get this straight.  Your advice is that the OP commit a felony, and then compound that felony by committing perjury.  Great.  


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cestmoi123 said:   
dynonopi said:   
marginoferror said:   
atikovi said:   
Knocks said:   My question is about what happens if I sell one of those expensed items in the future, specifically what happens if the item appreciates significantly (which I expect it will).  Will I owe a capital gains tax or ordinary income tax on the appreciated amount?  
  Aren't you over analyzing it? How would the IRS even find out if you sell a desk or chair that you previously deducted? 

  There may be ways to evade taxes that are difficult for the IRS to find out, but this isn't one of them.

They audit your return you took the deduction on. They see you expensed a desk. IRS: "where's the desk now?" That's how they find out. 

Next thing I imagine you're going to say is how would they find out if the purchase year is closed. The answer to that is, when you buy your next desk and expense it they ask what you were using before you had that new desk. You respond you were using your old desk and then they discover you failed to report the proceeds on your return.

  "oh I spilled a bunch of X all over the desk and had to junk it."

problem solved.

  
So, let's get this straight.  Your advice is that the OP commit a felony, and then compound that felony by committing perjury.  Great.  

  It's not what you know, it's what you can prove. 

Ruffles I'm with cestmoi on this one. You never want to do ANYTHING that gets you flagged in the IRS system I represented too many "smart" people that the IRS caught for one reason or another. Divorce, angry business partner, suspicious banker (restaurant owner deposited several hundred thousand dollars in checks and credit card receipts but NO CASH). Since you are a business owner your chances of being audited are 2-3X the normal for your income profile.

OP you have the right idea just play it straight.

nsdp said:   Ruffles I'm with cestmoi on this one. You never want to do ANYTHING that gets you flagged in the IRS system I represented too many "smart" people that the IRS caught for one reason or another. Divorce, angry business partner, suspicious banker (restaurant owner deposited several hundred thousand dollars in checks and credit card receipts but NO CASH). 
  I don't deposit any cash from my rentals .

I think you mean the restaurant owner didn't declare any cash income on his taxes

rufflesinc said:   
cestmoi123 said:   
dynonopi said:   
marginoferror said:   
atikovi said:   
Knocks said:   My question is about what happens if I sell one of those expensed items in the future, specifically what happens if the item appreciates significantly (which I expect it will).  Will I owe a capital gains tax or ordinary income tax on the appreciated amount?  
  Aren't you over analyzing it? How would the IRS even find out if you sell a desk or chair that you previously deducted? 

  There may be ways to evade taxes that are difficult for the IRS to find out, but this isn't one of them.

They audit your return you took the deduction on. They see you expensed a desk. IRS: "where's the desk now?" That's how they find out. 

Next thing I imagine you're going to say is how would they find out if the purchase year is closed. The answer to that is, when you buy your next desk and expense it they ask what you were using before you had that new desk. You respond you were using your old desk and then they discover you failed to report the proceeds on your return.

  "oh I spilled a bunch of X all over the desk and had to junk it."

problem solved.

  
So, let's get this straight.  Your advice is that the OP commit a felony, and then compound that felony by committing perjury.  Great.  

  It's not what you know, it's what you can prove. 

  
So, you'd be ethically fine with sneaking into a government office in the middle of the night and stealing the furniture and computers?  If you would regard that as wrong, but have no problem with the tax evasion suggestion to which I was responding, that just means that you're constrained by cowardice, rather than ethics.  Tax evasion (i.e. intentionally not paying tax you know you owe) is fundamentally no different from stealing government property - both are theft. 

cestmoi123 said:   
rufflesinc said:   
cestmoi123 said:   
dynonopi said:   
marginoferror said:   
atikovi said:   
Knocks said:   My question is about what happens if I sell one of those expensed items in the future, specifically what happens if the item appreciates significantly (which I expect it will).  Will I owe a capital gains tax or ordinary income tax on the appreciated amount?  
  Aren't you over analyzing it? How would the IRS even find out if you sell a desk or chair that you previously deducted? 

  There may be ways to evade taxes that are difficult for the IRS to find out, but this isn't one of them.

They audit your return you took the deduction on. They see you expensed a desk. IRS: "where's the desk now?" That's how they find out. 

Next thing I imagine you're going to say is how would they find out if the purchase year is closed. The answer to that is, when you buy your next desk and expense it they ask what you were using before you had that new desk. You respond you were using your old desk and then they discover you failed to report the proceeds on your return.

  "oh I spilled a bunch of X all over the desk and had to junk it."

problem solved.

  
So, let's get this straight.  Your advice is that the OP commit a felony, and then compound that felony by committing perjury.  Great.  

  It's not what you know, it's what you can prove. 

  
So, you'd be ethically fine with sneaking into a government office in the middle of the night and stealing the furniture and computers?  If you would regard that as wrong, but have no problem with the tax evasion suggestion to which I was responding, that just means that you're constrained by cowardice, rather than ethics.  Tax evasion (i.e. intentionally not paying tax you know you owe) is fundamentally no different from stealing government property - both are theft. 

No, I am constrained by our form of government, where accused is innocent until proven guilty. I am also constrained by the government s budget in investigation

If the government is unable to prove me guilty with the resources it is willing to expend, then by definition I am innocent.

rufflesinc said:   
cestmoi123 said:   
rufflesinc said:   
cestmoi123 said:   
dynonopi said:   
marginoferror said:   
atikovi said:   
Knocks said:   My question is about what happens if I sell one of those expensed items in the future, specifically what happens if the item appreciates significantly (which I expect it will).  Will I owe a capital gains tax or ordinary income tax on the appreciated amount?  
  Aren't you over analyzing it? How would the IRS even find out if you sell a desk or chair that you previously deducted? 

  There may be ways to evade taxes that are difficult for the IRS to find out, but this isn't one of them.

They audit your return you took the deduction on. They see you expensed a desk. IRS: "where's the desk now?" That's how they find out. 

Next thing I imagine you're going to say is how would they find out if the purchase year is closed. The answer to that is, when you buy your next desk and expense it they ask what you were using before you had that new desk. You respond you were using your old desk and then they discover you failed to report the proceeds on your return.

  "oh I spilled a bunch of X all over the desk and had to junk it."

problem solved.

  
So, let's get this straight.  Your advice is that the OP commit a felony, and then compound that felony by committing perjury.  Great.  

  It's not what you know, it's what you can prove. 

  
So, you'd be ethically fine with sneaking into a government office in the middle of the night and stealing the furniture and computers?  If you would regard that as wrong, but have no problem with the tax evasion suggestion to which I was responding, that just means that you're constrained by cowardice, rather than ethics.  Tax evasion (i.e. intentionally not paying tax you know you owe) is fundamentally no different from stealing government property - both are theft. 

No, I am constrained by our form of government, where accused is innocent until proven guilty. I am also constrained by the government s budget in investigation

If the government is unable to prove me guilty with the resources it is willing to expend, then by definition I am innocent.

  As I said, you're fine with stealing, you're just afraid of getting caught.  

Also, you clearly don't understand how the criminal justice system works.  The fact that you haven't been prosecuted and found guilty of something doesn't mean you're affirmatively innocent of it.  

cestmoi123 said:    The fact that you haven't been prosecuted and found guilty of something doesn't mean you're affirmatively innocent of it.  
  In the end isn't that all that counts?

atikovi said:   
cestmoi123 said:    The fact that you haven't been prosecuted and found guilty of something doesn't mean you're affirmatively innocent of it.  
  In the end isn't that all that counts?

  Sure, if you have no morals, and only refrain from doing things because you fear you'll be punished for them.  Some of us actually don't steal because it's wrong.   

cestmoi123 said:   
 So, you'd be ethically fine with sneaking into a government office in the middle of the night and stealing the furniture and computers?  If you would regard that as wrong, but have no problem with the tax evasion suggestion to which I was responding, that just means that you're constrained by cowardice, rather than ethics.  Tax evasion (i.e. intentionally not paying tax you know you owe) is fundamentally no different from stealing government property - both are theft. 

  I would regard that kind of burglary as high risk/low reward (not as right/wrong). if a cop were to respond, I might have to kill him so I could get away.  or he might kill me if he were to catch me by surprise.  death/murder are atypical for tax evasion.

if I were to get arrested for burglary, I might do time in a prison, which is typically much, much worse than a Club Fed for tax evasion.

In addition, a burglary (as you've described it) is pretty much unambiguous.  if caught in the act, what legit defense would I have? I was sleep walking?  tax evasion is generally much easier to explain away.

So, yea, burglary and tax evasion are both theft, just as Rosie O'Donnell & Stella Maxwell are both female.

cestmoi123 said:   
atikovi said:   
cestmoi123 said:    The fact that you haven't been prosecuted and found guilty of something doesn't mean you're affirmatively innocent of it.  
  In the end isn't that all that counts?

  Sure, if you have no morals, and only refrain from doing things because you fear you'll be punished for them.  Some of us actually don't steal because it's wrong.   

  Some crimes, like murder, battery, rape, theft, are illegal because they are immoral

Some crimes, like immigration violations, speeding, tax evasion, environmental , fish and wildlife, etc etc, are statutory violations because we passed a law saying so.

That's a big difference and I think based on your own political stances, you know that.

And yes, there's a difference between theft of government property and tax evasion.

rufflesinc said:   
cestmoi123 said:   
rufflesinc said:   
cestmoi123 said:   
dynonopi said:   
marginoferror said:   
atikovi said:   
Knocks said:   My question is about what happens if I sell one of those expensed items in the future, specifically what happens if the item appreciates significantly (which I expect it will).  Will I owe a capital gains tax or ordinary income tax on the appreciated amount?  
  Aren't you over analyzing it? How would the IRS even find out if you sell a desk or chair that you previously deducted? 

  There may be ways to evade taxes that are difficult for the IRS to find out, but this isn't one of them.

They audit your return you took the deduction on. They see you expensed a desk. IRS: "where's the desk now?" That's how they find out. 

Next thing I imagine you're going to say is how would they find out if the purchase year is closed. The answer to that is, when you buy your next desk and expense it they ask what you were using before you had that new desk. You respond you were using your old desk and then they discover you failed to report the proceeds on your return.

  "oh I spilled a bunch of X all over the desk and had to junk it."

problem solved.

  
So, let's get this straight.  Your advice is that the OP commit a felony, and then compound that felony by committing perjury.  Great.  

  It's not what you know, it's what you can prove. 

  
So, you'd be ethically fine with sneaking into a government office in the middle of the night and stealing the furniture and computers?  If you would regard that as wrong, but have no problem with the tax evasion suggestion to which I was responding, that just means that you're constrained by cowardice, rather than ethics.  Tax evasion (i.e. intentionally not paying tax you know you owe) is fundamentally no different from stealing government property - both are theft. 

No, I am constrained by our form of government, where accused is innocent until proven guilty. I am also constrained by the government s budget in investigation

If the government is unable to prove me guilty with the resources it is willing to expend, then by definition I am innocent.

  Actually, "by definition" you aren't "innocent," you're "not guilty."

Also, you think the federal government's budget in a criminal investigation is small? It astonishes me how often people think they can easily explain criminal activity with a cover story and just walk away without considering all the other problems with the cover story. I'm not going to get into the details, but it doesn't work to just say "the desk was destroyed, I got rid of it" after they initiate an audit. Suffice it to say that at that point the auditor may cease communications and in several months you'd find out that CI took over. About 70% of all initiated CI tax cases result in guilty verdicts. Over 95% of CI tax cases that prosecutors recommend for indictment result in guilty verdicts. About 99% of CI tax cases where there is an indictment result in guilty verdicts. So... I wouldn't recommend clinging to the federal government's budget as evidence that you'll win. Also, probably not a great idea to attempt to convince someone in a public forum to commit tax evasion, especially when that person has indicated his/her goal is to file properly.

marginoferror said:   
rufflesinc said:   
cestmoi123 said:   
rufflesinc said:   
cestmoi123 said:   
dynonopi said:   
marginoferror said:   
atikovi said:   
Knocks said:   My question is about what happens if I sell one of those expensed items in the future, specifically what happens if the item appreciates significantly (which I expect it will).  Will I owe a capital gains tax or ordinary income tax on the appreciated amount?  
  Aren't you over analyzing it? How would the IRS even find out if you sell a desk or chair that you previously deducted? 

  There may be ways to evade taxes that are difficult for the IRS to find out, but this isn't one of them.

They audit your return you took the deduction on. They see you expensed a desk. IRS: "where's the desk now?" That's how they find out. 

Next thing I imagine you're going to say is how would they find out if the purchase year is closed. The answer to that is, when you buy your next desk and expense it they ask what you were using before you had that new desk. You respond you were using your old desk and then they discover you failed to report the proceeds on your return.

  "oh I spilled a bunch of X all over the desk and had to junk it."

problem solved.

  
So, let's get this straight.  Your advice is that the OP commit a felony, and then compound that felony by committing perjury.  Great.  

  It's not what you know, it's what you can prove. 

  
So, you'd be ethically fine with sneaking into a government office in the middle of the night and stealing the furniture and computers?  If you would regard that as wrong, but have no problem with the tax evasion suggestion to which I was responding, that just means that you're constrained by cowardice, rather than ethics.  Tax evasion (i.e. intentionally not paying tax you know you owe) is fundamentally no different from stealing government property - both are theft. 

No, I am constrained by our form of government, where accused is innocent until proven guilty. I am also constrained by the government s budget in investigation

If the government is unable to prove me guilty with the resources it is willing to expend, then by definition I am innocent.

  Actually, "by definition" you aren't "innocent," you're "not guilty."

 

  No, innocent until proven guilty. When a jury returns a "not guilty" verdict, it means the govt didn't prove guilty, hence you're still innocent.

Also, you think the federal government's budget in a criminal investigation is small? It astonishes me how often people think they can easily explain criminal activity with a cover story and just walk away without considering all the other problems with the cover story. I'm not going to get into the details, but it doesn't work to just say "the desk was destroyed, I got rid of it" after they initiate an audit. Suffice it to say that at that point the auditor may cease communications and in several months you'd find out that CI took over. About 70% of all initiated CI tax cases result in guilty verdicts. Over 95% of CI tax cases that prosecutors recommend for indictment result in guilty verdicts. About 99% of CI tax cases where there is an indictment result in guilty verdicts. So... I wouldn't recommend clinging to the federal government's budget as evidence that you'll win. Also, probably not a great idea to attempt to convince someone in a public forum to commit tax evasion, especially when that person has indicated his/her goal is to file properly.

I leave it up to OP to determine if it's likely the govt can prove his guilt.  

And regarding the budget, you don't compare the whole budget of the IRS to one case. You compare how much it costs the govt to investigate and prosecute that case to how much tax and penalties and interest they could recover from that case. Do you think they will expend that much man power for two figures in unpaid taxes that OP has receipts for ? One statistic you omit is what percent of those CT tax cases involve less than $100 in unpaid taxes. How about percent involving less than $1000 in unpaid taxes? How about when those taxes aren't from undeclared income or completely made up deductions, but rather from documented expenses that are not actually used in business but not easily provable?
Suffice it to say that at that point the auditor may cease communications and in several months you'd find out that CI took over.
You also omit the percent of audited cases that are referred to CI, that is incredibly important

I'm sure if someone like wesley snipes doesn't pay seven figures of  taxes, the govt will nail them, but if you're talking a freaking desk,  cmon .

rufflesinc said:   
cestmoi123 said:   
atikovi said:   
cestmoi123 said:    The fact that you haven't been prosecuted and found guilty of something doesn't mean you're affirmatively innocent of it.  
  In the end isn't that all that counts?

  Sure, if you have no morals, and only refrain from doing things because you fear you'll be punished for them.  Some of us actually don't steal because it's wrong.   

  Some crimes, like murder, battery, rape, theft, are illegal because they are immoral

Some crimes, like immigration violations, speeding, tax evasion, environmental , fish and wildlife, etc etc, are statutory violations because we passed a law saying so.

That's a big difference and I think based on your own political stances, you know that.

And yes, there's a difference between theft of government property and tax evasion.

  Actually, murder, battery, rape, and theft are illegal because we passed a law saying so. E.g. murder is defined as an unlawful killing... Theft is defined as the unlawful taking... Theft actually used to be considered a private offense.

Understanding, though, that you're trying to draw a distinction between morality and the criminal code, it's a fool's errand. I don't know what your definition of "moral" is, but intentionally lying on your tax returns for the purpose of paying less than you owe doesn't seem moral to me...

marginoferror said:   
rufflesinc said:   
cestmoi123 said:   
atikovi said:   
cestmoi123 said:    The fact that you haven't been prosecuted and found guilty of something doesn't mean you're affirmatively innocent of it.  
  In the end isn't that all that counts?

  Sure, if you have no morals, and only refrain from doing things because you fear you'll be punished for them.  Some of us actually don't steal because it's wrong.   

  Some crimes, like murder, battery, rape, theft, are illegal because they are immoral

Some crimes, like immigration violations, speeding, tax evasion, environmental , fish and wildlife, etc etc, are statutory violations because we passed a law saying so.

That's a big difference and I think based on your own political stances, you know that.

And yes, there's a difference between theft of government property and tax evasion.

  Actually, murder, battery, rape, and theft are illegal because we passed a law saying so. E.g. murder is defined as an unlawful killing... Theft is defined as the unlawful taking... Theft actually used to be considered a private offense.


 

  Making murder, etc, legal doesn't make it moral. Murder can occur without any legal framework. 
Understanding, though, that you're trying to draw a distinction between morality and the criminal code, it's a fool's errand.
the tax code is arbitrary , ungrounded in morality or ethics. All kinds of carve-outs and hand-outs. So is immigration law. So is fish and game and wildlife. 
 I don't know what your definition of "moral" is, but intentionally lying on your tax returns for the purpose of paying less than you owe doesn't seem moral to me...
I go with what wikipedia says here bolded
Morality can be a body of standards or principles derived from a code of conduct from a particular philosophyreligion, or culture, or it can derive from a standard that a person believes should be universal.
btw, maybe you haven't been paying attention the last couple of years, but there's no such thing as lying. There's only alternative truths

rufflesinc said:   

  No, innocent until proven guilty. When a jury returns a "not guilty" verdict, it means the govt didn't prove guilty, hence you're still innocent.


Ok, feel free to quote slogans, but that isn't the way it works. "Innocent" means you didn't do something. "Guilty" and "not guilty" are legal terms of art. "Not guilty" means the government could not prove it's case to whatever standard is required (i.e. beyond a reasonable doubt). You can be "guilty" and "innocent." You can also be "not guilty" and "not innocent."

Also, you think the federal government's budget in a criminal investigation is small? It astonishes me how often people think they can easily explain criminal activity with a cover story and just walk away without considering all the other problems with the cover story. I'm not going to get into the details, but it doesn't work to just say "the desk was destroyed, I got rid of it" after they initiate an audit. Suffice it to say that at that point the auditor may cease communications and in several months you'd find out that CI took over. About 70% of all initiated CI tax cases result in guilty verdicts. Over 95% of CI tax cases that prosecutors recommend for indictment result in guilty verdicts. About 99% of CI tax cases where there is an indictment result in guilty verdicts. So... I wouldn't recommend clinging to the federal government's budget as evidence that you'll win. Also, probably not a great idea to attempt to convince someone in a public forum to commit tax evasion, especially when that person has indicated his/her goal is to file properly.

I leave it up to OP to determine if it's likely the govt can prove his guilt.  
And regarding the budget, you don't compare the whole budget of the IRS to one case. You compare how much it costs the govt to investigate and prosecute that case to how much tax and penalties and interest they could recover from that case. Do you think they will expend that much man power for two figures in unpaid taxes that OP has receipts for ? One statistic you omit is what percent of those CT tax cases involve less than $100 in unpaid taxes. How about percent involving less than $1000 in unpaid taxes? How about when those taxes aren't from undeclared income or completely made up deductions, but rather from documented expenses that are not actually used in business but not easily provable?
 

My point is to say that budget for federal prosecutions generally result in a prosecutor getting most things they need to proceed to trial.

Suffice it to say that at that point the auditor may cease communications and in several months you'd find out that CI took over.
You also omit the percent of audited cases that are referred to CI, that is incredibly important

I'm sure if someone like wesley snipes doesn't pay seven figures of  taxes, the govt will nail them, but if you're talking a freaking desk,  cmon .


As far as I know, the government doesn't publish data on potential CI cases that do not end up being referred to CI, for obvious reasons. This percentage is actually the percentage that you're looking for, not the percentage of total audits that are referred to CI. Although I would concede that the number of cases CI takes on is very small, we don't know whether there are CI type cases that they don't pursue because of amounts. The idea, though, is that the crime itself stands on its own, and the amounts shouldn't be relevant. If they just want the money, they can pursue that through civil means. You also are saying this is what he should do. So do you under-report your income by about $15,000 every year (seems like there's at least 4 assets and at least 2 are valued over $2,500) because there's no way that IRS CI will come after you over that small amount?
  

Wow what a finance thread! Starts with an innocent question and devolves into how the commit a felony and all the ways the IRS is going to throw you into jail.

marginoferror said:   
 So do you under-report your income by about $15,000 every year (seems like there's at least 4 assets and at least 2 are valued over $2,500) because there's no way that IRS CI will come after you over that small amount?
  

  No, you do whatever you can where you think it's very difficult to prove. The IRS has to expend more resources when its not obvious you're underreporting income or taking improper deduction

For example, I've really pushed the limit on my rentals when taking deductions instead of depreciating. (though that's no longer an issue for 99% of the cases with the new IRS safe harbor rule.). But it would be extremely difficult to prove
Ok, feel free to quote slogans, but that isn't the way it works. "Innocent" means you didn't do something. "Guilty" and "not guilty" are legal terms of art. "Not guilty" means the government could not prove it's case to whatever standard is required (i.e. beyond a reasonable doubt). You can be "guilty" and "innocent." You can also be "not guilty" and "not innocent."
If the government could not prove it's case, then you are still presumed innocent. The fact that the govt push for a trial and got a not guilty verdict does not change anything .

I don't think there's anything wrong with being aggressive. I'd say I'm probably one of the more aggressive people on tax positions taken. But the recommendations to the OP aren't about aggressive tax positions. They're simply false statements. If OP sells an asset with 0 basis and doesn't report the income, that's just basic failure to report. If OP, on the other hand, takes a position that the income is not subject to tax, that's could be an aggressive tax position, but it is a position on the legal treatment of the proceeds. It would all be reported to the IRS and the IRS can make its determination about whether they want to pursue it and/or whether they agree with the taxpayer.

Obviously just because you're disclosing information doesn't mean you won't necessarily be subject to civil or possibly criminal penalties, but it's an entirely different situation from intentional failure to report income.

marginoferror said:   
It astonishes me how often people think they can easily explain criminal activity with a cover story and just walk away without considering all the other problems with the cover story. I'm not going to get into the details, but it doesn't work to just say "the desk was destroyed, I got rid of it" after they initiate an audit. Suffice it to say that at that point the auditor may cease communications and in several months you'd find out that CI took over. About 70% of all initiated CI tax cases result in guilty verdicts. Over 95% of CI tax cases that prosecutors recommend for indictment result in guilty verdicts. About 99% of CI tax cases where there is an indictment result in guilty verdicts. So... I wouldn't recommend clinging to the federal government's budget as evidence that you'll win. Also, probably not a great idea to attempt to convince someone in a public forum to commit tax evasion, especially when that person has indicated his/her goal is to file properly.

  

  Then I'd tell CI, "After spilling some stuff on the desk, I junked it."    What would CI do? Quote a bunch of statistics?

Also, you said 70% of "initiated" CI cases resulted in guilty verdicts.  You realize that "initiated" doesn't mean "referred," right?  "Initiated" means cases CI pursued.  

It could look like this:

100 cases referred to CI
10 cases initiated by CI (90 rejected)
7 guilty verdicts

That's another way of saying that CI won 70% of "initiated" cases. 
  

marginoferror said:   I don't think there's anything wrong with being aggressive. I'd say I'm probably one of the more aggressive people on tax positions taken. But the recommendations to the OP aren't about aggressive tax positions. They're simply false statements. If OP sells an asset with 0 basis and doesn't report the income, that's just basic failure to report. If OP, on the other hand, takes a position that the income is not subject to tax, that's could be an aggressive tax position, but it is a position on the legal treatment of the proceeds. It would all be reported to the IRS and the IRS can make its determination about whether they want to pursue it and/or whether they agree with the taxpayer.

Obviously just because you're disclosing information doesn't mean you won't necessarily be subject to civil or possibly criminal penalties, but it's an entirely different situation from intentional failure to report income.

  Agreed.  There's a huge legal and ethical difference between an honestly held tax position that the IRS ends up rejecting, and intentionally providing the IRS with false information. 

cestmoi123 said:   
marginoferror said:   I don't think there's anything wrong with being aggressive. I'd say I'm probably one of the more aggressive people on tax positions taken. But the recommendations to the OP aren't about aggressive tax positions. They're simply false statements. If OP sells an asset with 0 basis and doesn't report the income, that's just basic failure to report. If OP, on the other hand, takes a position that the income is not subject to tax, that's could be an aggressive tax position, but it is a position on the legal treatment of the proceeds. It would all be reported to the IRS and the IRS can make its determination about whether they want to pursue it and/or whether they agree with the taxpayer.

Obviously just because you're disclosing information doesn't mean you won't necessarily be subject to civil or possibly criminal penalties, but it's an entirely different situation from intentional failure to report income.

  Agreed.  There's a huge legal and ethical difference between an honestly held tax position that the IRS ends up rejecting, and intentionally providing the IRS with false information. 

  how do you know the "false information" wasn't honestly held ?

rufflesinc said:   
cestmoi123 said:   
marginoferror said:   I don't think there's anything wrong with being aggressive. I'd say I'm probably one of the more aggressive people on tax positions taken. But the recommendations to the OP aren't about aggressive tax positions. They're simply false statements. If OP sells an asset with 0 basis and doesn't report the income, that's just basic failure to report. If OP, on the other hand, takes a position that the income is not subject to tax, that's could be an aggressive tax position, but it is a position on the legal treatment of the proceeds. It would all be reported to the IRS and the IRS can make its determination about whether they want to pursue it and/or whether they agree with the taxpayer.

Obviously just because you're disclosing information doesn't mean you won't necessarily be subject to civil or possibly criminal penalties, but it's an entirely different situation from intentional failure to report income.

  Agreed.  There's a huge legal and ethical difference between an honestly held tax position that the IRS ends up rejecting, and intentionally providing the IRS with false information. 

  how do you know the "false information" wasn't honestly held ?

  
If you have to ask, you're probably on the illegal and unethical side.

rufflesinc said:   
cestmoi123 said:   
marginoferror said:   I don't think there's anything wrong with being aggressive. I'd say I'm probably one of the more aggressive people on tax positions taken. But the recommendations to the OP aren't about aggressive tax positions. They're simply false statements. If OP sells an asset with 0 basis and doesn't report the income, that's just basic failure to report. If OP, on the other hand, takes a position that the income is not subject to tax, that's could be an aggressive tax position, but it is a position on the legal treatment of the proceeds. It would all be reported to the IRS and the IRS can make its determination about whether they want to pursue it and/or whether they agree with the taxpayer.

Obviously just because you're disclosing information doesn't mean you won't necessarily be subject to civil or possibly criminal penalties, but it's an entirely different situation from intentional failure to report income.

  Agreed.  There's a huge legal and ethical difference between an honestly held tax position that the IRS ends up rejecting, and intentionally providing the IRS with false information. 

  how do you know the "false information" wasn't honestly held ?

  
That's a question of fact which, if it comes to it, a jury decides. Juries decide on questions of intent all the time.  It's the difference between owing back taxes+penalties+interest, and going to jail.  It's the Cheek defense, and it usually doesn't work (see Wesley Snipes). 

forbin4040 said:   Wow what a finance thread! Starts with an innocent question and devolves into how the commit a felony and all the ways the IRS is going to throw you into jail.
  
I miss these type of threads. FWF used to be all about financial fraud.



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