New York Times, The Problem With Unreported Income

[T]here are many business owners who fail to report all of their business income on their tax returns and financial statements. The IRS has estimated the net tax gap of business income to be more than $100 billion.

Many of these businesses tend to be cash intensive: convenience stores, restaurants, retail, auto shops, coin-operated car washes and laundromats. … The inevitable question of unreported income would elicit one of two responses from the owner. The first was a general sheepishness, while the other was a prickly defensiveness: “It’s my business. Besides, lots of people do it."

From William Turnier (North Carolina):

Here is an interesting link from yesterday's NYT on the perils of unreported income for small business owners who eventually wish to sell the business.

It is the sort of thing that law profs may wish to be able to refer to for students with larceny in their hearts or at least to deal with clients who are so inclined. This may be of interest to academic readers of TaxProf.

A while back when working on an article, I interviewed a high level officer at RBC Centura about their interest in tax returns when making loan decisions. She indicated that they were used extensively and that at a scent of fraud they would drop the loan application from a business for two reasons. The back taxes owed and penalties and interest would make the applicant a poor risk placing a host of potential liabilities on the books. Of equal importance was the fact that if the client lied to the IRS it could be counted on to lie to the bank and this cast the credibility of all documentation from the applicant in grave doubt.