Sometimes being too clever in doing taxes can come back to haunt a small business owner, as Steve Sink explains at IowaBiz.com:
When they returned to the owner’s office the broker pointed out that there appeared to be a significant difference between the amount of inventory on the books vs. what was in the warehouse. The owner quickly agreed, stating that if he reported it, he would just have to pay taxes. In addition, his sales would be lower because he would not have as much inventory. Therefore, he would not make as much money.
The subject changed to the equipment, which was on the books for much less than it was obviously worth.The owner agreed and indicated that all parts for the equipment are charged to cost of goods. He then would have his employees assemble the parts for the new machinery.
Were prospective buyers impressed by the owner's sneakiness? No:
The broker polled the group for their thoughts. The group, to a person, felt the business was not saleable and did not want to be associated with this type of a transaction. The owner had a serious income-tax evasion issue and the potential liability for the buyer could be significant.
The owner needed to go to a tax specialist NOW. He was probably going to need five years or more to clean up his books before he could put it up for sale.
When you lie to your tax preparer and the IRS, it's hard to convince a potential buyer that you're telling him the truth.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to