PREDICTORS OF UNREPORTED INCOME:
Nearly $60 billion per year in tax revenue is lost from the tax due on income under reported by sole proprietors and informal suppliers according to estimates of the individual gross tax gap.
Unreported income is the single largest component of the gap.
The difference between income that was reported voluntarily and income that should have been reported is the definition of unreported income.
Both income and self-employment taxes are lost when these individuals inaccurately report their income.
Detecting unreported income is difficult.
Various efforts have been undertaken by the Internal Revenue Service over the years to address unreported income.
After IRS spent a great deal of time of due diligence they IRS have determined factors indicators to look for.
- Negative cash flow on the returns that led the classifier to believe that there could be unreported income.
- The appearance of related entities that were not reflected on the original return.
- Large Schedule E expenses that one classifier felt was the deduction of personal living expenses but another classifier felt was possibly disguising unreported income
- Questions of ownership of property and whether the taxpayer could actually afford it.
- Taxpayers living in certain areas with a high standard of living and income reflections are low.
Read the full IRS tax link – http://www.irs.gov/pub/irs-soi/puidif2.pdf
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