Is it illegal to OVERSTATE your S-Corp earnings to the IRS?
January 25, 2009 by Tax Blog
Filed under Questions & Answers
manny3000 asked:
I know this is a bit counter-intuitive due to the fact logic says you should attempt to lower the numbers you report to the IRS. However, lets say your small business made $2,000 in profits as your side business on $15,000 in revenue ($15,000 – $13,000 cost of goods). What would happen if you, for example, say your business made $1,500,000 in revenues, and with $1,498,000 cost of goods?
I know this is a bit counter-intuitive due to the fact logic says you should attempt to lower the numbers you report to the IRS. However, lets say your small business made $2,000 in profits as your side business on $15,000 in revenue ($15,000 – $13,000 cost of goods). What would happen if you, for example, say your business made $1,500,000 in revenues, and with $1,498,000 cost of goods?
Its still the same profit, and you’re not evading your taxes in any way. Just simply grossly overstating them to make your business seem larger than it really is.
I would like to hear some comments on this, and please, no rude remarks.
And no, I was not a former Enron advisor.
JD on Wed, 28th Jan 2009 5:03 am
it’s illegal to state something that isn’t true. period.
FrankieM on Wed, 28th Jan 2009 7:02 pm
My first question would be – Why you would want to do this…..
Increased profit = Increased taxes due…..
From the IRS’ point of view – this is illegal – however it would result in an error which favors the IRS – so if discovered via an audit of your business records… an independant report…. etc – they probably wouldn’t rush to correct it.
But it could raise some flags……
bostonianinmo on Thu, 29th Jan 2009 10:10 pm
Yes, it is illegal to mis-state your income or expenses. If the IRS wanted to play hardball with you, they’d disallow the CGS that you couldn’t prove and assess tax on the resulting $1,487,000. in profit. That would leave you with a $500,000 plus tax bill, and that would leave you penniless for the rest of your life.
It’s EXACTLY that kind of shenanigans that lead to the Enron melt-down, by the way. That type of fraud can get you MAJOR prison time.
lemongrass on Fri, 30th Jan 2009 1:32 am
No you cannot do this.The reason is because it will mislead the investors and other stakeholders.
Assume in Year 1, your sales is $10,000 and your cost is $6,000. You make a net profit of $4,000.
Assume in Year 2, your business is bad. Your sales for the year is only $8,000 and your cost is $5,000. You make $3,000. If you reported your sales to be $15,000 and cost $12,000. You still make a profit of $3,000
Now, from the investor and stakeholders’ views, your business growth is 50% from year 1 to year 2 ($10,000 to $15,000). This is different from the actual fact that your business is declining.
If all your competitors report a decline in business, but you reported a growth, then this will influence the potential investors or stakeholders in their decision making.
If these people eventually suffered a loss because they relied on this information when making their decisions, then they could sue you and you’d go to jail.
Judy on Sat, 31st Jan 2009 12:52 pm
It’s illegal to put down false numbers on your return.
When you sign it, you state under penalty of perjury that everything on the return is true to the best of your knowledge. So no, this isn’t legal to do even though your taxes would still be the same either way.
Job E on Sun, 1st Feb 2009 4:08 pm
If the numbers all turn out accurately then no but if you get auditted and numbers are off then you will have problems.
It really defies logic to want your business to seem like something it’s not. it’s not good to form bad habits in any career. you’ll end up not living up to your potential.
I own my business, i’m a auto wholesaler and when working in commision business you really get to see how cheating, cutting corners, scamming and bad habits effect people. everyone that does these things either fails are makes just enough to get by. it’s the ones that work hard and do EVERYTHING THE RIGHT WAY EVERY TIME that get rich and stay rich.