A self-employed chiropractor based in Hayward, California, was found liable for penalties for failure to file tax returns for eight years with the intent to conceal, mislead, or otherwise prevent the collection of tax. The original IRS investigation of Dr. Ramon Reynoso began in 2003. In April 2008, he pleaded guilty to criminal income tax evasion for only one tax year. Subsequently, the Commissioner issued notices of deficiency for tax years 1997 through 2004. Dr. Reynoso filed a Tax Court petition to dispute the penalties assessed for fraudulent failure to file, failure to timely pay, and failure to pay estimated taxes.
The Tax Court determined that Dr. Reynoso used false identification numbers on Forms W-9 and bank account application forms among other methods to move money from different accounts to various trusts. His records of business receipts and expenses were nonexistent, and he did not have an accountant or bookkeeper. Records of his sales of stocks and securities were inaccurate and incomplete.
In order to estimate Dr. Reynoso’s true income, given his lack of records, the IRS used a bank-deposits analysis. The IRS regularly conducts bank deposits analyses in business tax examinations, which result in estimated income that is often substantially overstated but may be difficult to disprove without compelling documentary evidence.
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