Seventh Circuit Holds That Untaken Deductions Cannot Be Used To Offset Tax Loss
A taxpayer who fails to report income is usually charged with, and faces a potential jail sentence based on, the tax loss calculated on the omitted gross income, without regard to any offsetting deductions. For example, a car wash owner who takes in, but does not entirely report, his cash proceeds, faces a sentence based on the amount of that omitted income; he may also have incurred deductible salary expenses when paying his employees with cash and so could arguably reduce the income amount and thereby reduce his exposure to jail. The Tenth Circuit recently held that a sentencing court has the discretion to offset the income, and therefore lower the critical tax loss computation, by the deductible expenses related to the unreported receipts.
It is nearly an article of faith that, in negotiating a guilty plea to a Title 26 offense, the prosecutor and the CI agent working the case for the IRS will invariably agree to take into consideration in reaching a "tax loss" number for sentencing purposes a wide array of tax return considerations which effectively… Continue Reading