by Gregory J. Cook, EA, CPA
Accredited Tax Advisor
"The IRS will typically undertake a net worth investigation when one or more of the following conditions exist: the taxpayer maintains no books and records; the books and records are not available; the books and records are inadequate; or the taxpayer withholds his books and records."
This method of proving unreported income, often used in tax evasion and civil fraud cases, is one of a number of methods that assume that the taxpayer has hidden his income; therefore, true income cannot be proven directly.
Every item of the special agent's or revenue agent's report must be analyzed in great detail and dissected for correctness. Every time an error is found, the trustworthiness of this inherently untrustworthy method is called further into question.
The method, shaky to start, may be discredited by proving as few as one, or perhaps two or three, significant errors. Moreover, small errors may be combined to add up to major holes in the government's case.