When taxpayers don’t keep sufficient records to prove their taxable income, the IRS can reconstruct income from available data and calculate the tax owed. Absent contrary evidence, the IRS calculation is presumed correct. One business owner failed to keep records or file tax returns for 3 years, yet he disputed the tax bill determined by the IRS. He claimed his disabilities caused him to rely on his then-wife, who mishandled company finances. The Tax Court agreed with the IRS, stating the taxpayer had failed to present contradictory evidence.
Tax preparation services aren’t a tax-free benefit to employees working abroad. In a Chief Counsel Advice, the IRS stated that services provided by a domestic company to benefit employees working in foreign countries are generally includable in the employees’ gross income and subject to employment taxes. One large American company paid a CPA for tax prep services to employees, calling it a tax-free benefit. The IRS disagreed, noting that, when an employer pays a personal expense of an employee, the payment results in taxable income to the employee.