Using Business Checkbook for Personal Purposes Raises Suspicions

by Kenneth Hoffman in ,

Using your business checkbook for personal purposes can always raise suspicions. In Dwight D. Vanover (T.C. Memo. 2012-79) the taxpayer had already undergone a criminal investigation by the IRS in connection with the underreporting of income from his business.

During the years at issue the taxpayer used the business account to buy a $159,000 boat and two collectible cars, one for $60,000 in cash; the other for $32,500 in cash and some 11 additional vehicles from various sellers for a total of $277,000.

The taxpayer's tax preparer testified that he relied on the taxpayer's summary statements of income and expenses and the taxpayer did not provide any supporting documents. He also testified that he was unaware the business bank account was used to pay the taxpayer's personal expenses.

The Court looked at the other "badges of fraud" and concluded that the IRS had proven by clear and convincing evidence that the taxpayer underpaid his tax liabilities for the years at issue and that some part of the underpayment was due to fraud.

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