The best way for you to keep your business out of legal trouble with the IRS is to carefully figure out how much the company owes in taxes and then pay it. You cannot guarantee that the IRS won’t send you a letter someday, but you can reduce your risk by fully reporting your income and taking only the allowable deductions.
Tax ‘zappers’
In this tech-driven age, some business owners try to avoid paying taxes through software called “phantom-ware” or “zappers.” This software helps owners hide electronic sales and create two sets of books in an attempt to reduce their tax bill.
When a tax agency finds a business using zappers to evade taxes, the agency will come down hard. According to Bloomberg BNA, a Washington state restaurant has settled charges that it used zapper software to avoid paying $395,000 in state income taxes.
Government monitoring
As part of the plea agreement, the owner agreed that her Bellevue restaurant’s electronic point-of-sale transactions will be subject to government monitoring for five years.
Not only is this case believed to be the first time a U.S. business has been prosecuted under a state law banning zapper software, it is also the first time monitoring is part of the settlement in a zapper case. One of the defendant’s attorneys predicted that monitoring of electronic point-of-sale transactions will be “the future” of these cases.
Of course, you could be doing everything right and still face an IRS audit someday, especially if you received poor tax advice or assistance in the past. The key is not to panic or ignore the issue; instead, contact an experienced tax attorney for help preparing for the audit.