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Noncompliance with ACA could trigger IRS audit, prosecution

Many business practices can attract scrutiny as possible tax fraud

Obamacare is still the law of the land. Failure to extend coverage or make Affordable Care Act payments can result in a tax audit and civil penalties or even charges of tax fraud.

Avoiding ACA obligations joins the long list of red flags that might cause your business and/or your personal finances to be audited. If the IRS concludes that you are willfully noncompliant, it may pursue civil and criminal sanctions.

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Respond promptly to an ACA exchange notice

President Trump quipped “Nobody knew health care could be so complicated.” Employers certainly know how complex it is, especially those who are struggling with the mandates of the Affordable Care Act or confronted with a notice from a state health care exchange.

An exchange notice should be dealt with swiftly, advises Accounting Today. Waiting only invites an IRS audit, with the possibility of thousands of dollars in penalties. In the worst case scenario, shoddy recordkeeping, failing to offer coverage to qualified employees, or failing to make a shared responsibility payment to the IRS could be construed as tax fraud (tax evasion).

What else raises IRS red flags?

In addition to failing to comply with the ACA or respond to a health exchange notice, other business practices can trigger audits or tax fraud investigations:

  • Cash-based businesses (for example, food trucks or convenience stores) attract scrutiny, especially any indication of underreported income.
  • It is illegal to purchase or use “zapper” software that skims revenues and creates an alternate set of books.
  • Delinquent payroll taxes may simply mean that a business is struggling or has cash flow problems, but to the IRS it is a “first indicator” of possible tax fraud.
  • Doctoring or fabricating receipts and invoices in conjunction with tax retuns is considered tax evasion.
  • Overstating or fabricating deductions, or claiming personal expenses as business expenses, often triggers tax audits. Charitable donations are closely scrutinized.
  • Delaying revenues or capital gains to the following tax year – or accelerating expenses to the current year – is not illegal. But the IRS watches for schemes to “double dip” by subsequently claiming expenses again or failing to report those delayed receipts or gains.
  • Checks written to the business owner instead of the business are a red flag for fraud.
  • Bookkeeping irregularities, missing paperwork or sloppy accounting invites an audit. Doing your own business taxes demands discipline, organization and attention to detail.

Whether you have made honest mistakes or knowingly fudged taxes, you will eventually need to make things right with the IRS. However, if the IRS is asking questions or if you think there is any possibility of being prosecuted for tax fraud, consult with a criminal defense attorney before talking with an IRS auditor or agent. Your statements can be misconstrued or used as leverage against you.

Source: Tax Avoidance Is Legal. Tax Evasion Is Criminal. (BizFilings.com)

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