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Published by Eva Rosenberg, MBA, EA
Unreported barter can get you into trouble...
Why should the IRS care about barter?
It's a huge, quiet and old industry. It is the perfect vehicle through which to hide taxable income.
Getting back to our story - I did my best to convince him that the IRS could not bring any criminal action against him for not filing tax returns - only for lying on them. So, since we needed to file for 10 years, it was in his best interests to come completely clean.
Tell me the whole truth. I pleaded with him to reveal all the transactions he could remember. After all, they were hot to convince him to testify - and I didn't want to file tax returns where the IRS knew about income that I didn't include.
After all, even if we only used the information I already had, his outstanding tax liabilities were going to be so high that he would never be able to pay them. So who cares if he owes $250,000 plus penalties and interest or a million dollars. We may as well tell the truth.
As it turns out, by the third time I re-did his tax returns, he finally revealed that he had traded one of Leonardo's paintings for about $10,000 worth of dental work. More art for $15,000 worth of trips one year. Yet more art took care of his weekly dry cleaning bills. In one year, Steve used paintings to cover a substantial portion of his personal expenses. So, can you imagine how much his boss used for his very elegant, expensive personal life? I haven't a clue - and don't dare speculate.
Well, Steve submitted the tax returns. Then in front of the judge, IRS's Criminal Investigation folks asked him about all his barter income. Steve claimed it was all reported on his tax return - they couldn't touch him. Then, they asked if he had ever sold a painting to a certain wealthy collector. Steve said he hadn't. They interrogator made him confirm that. Then he asked him if he recognized his endorsement on the back of a check for $80,000 that had been cashed at the collector's bank.
Oops. Telling me all about the barter did no good - he didn't come clean about the cash.
How does the story end? Oh yes, he was convicted. He never squealed on his boss.
Don't even ask about the sentencing. You don't want to know.
But what about Leonardo? He's still famous and going strong.
I haven't heard anything in the news about the IRS getting him...and it's been nearly five years.
So, I guess the IRS didn't get their landmark case, after all.
The moral? Barter may get you into trouble BUT never lie to your tax professional - or your attorney. They are the ones who save you.
Eva Rosenberg, MBA, is an Enrolled Agent in Encino, California. She is a sought-after speaker on tax and small business issues. Her practice focuses on small business, non-filers, and problem tax audits.
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