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Tax Audit Warning For Webmasters

J.D. Obenberger, Esq.

Picture yourself sitting in an office at the IRS. You have been audited. The IRS agent is asking you why your reported $30,000 in income from your site, but your bank statement shows an additional $70,000 in income from "offshore xxx". You don't know what to say. The IRS agent starts smirking. You pinch yourself…but you don't wake up. Couldn't happen to you? Now you are really dreaming.

The Internal Revenue Service audits hundreds of thousands of taxpayers each year, 618,000 from January to December 2000. Many of these audits are bundled with criminal investigations. In relation to the adult industry, authorities have traditionally pursued a strategy of conducting audits in addition to any other charges brought against an adult business. History has shown that most businesses run into legal difficulties when aggressively audited. This article is intended to alert you to the fact that the IRS is stepping up the number of aggressive audits it will be conducting.

What is an "aggressive audit"? Better known as "audits from hell", these audits entail a line-by-line review of your tax returns. Common through the 1980s, the "audits from hell" program was cancelled in 1988 under pressure from Congress. Well, its back. Once you receive notice, you will be traveling to a lovely IRS office near you. There you will sit down with an agent to review each and every entry on your tax return. Documentation must be supplied to support each and every entry on your tax return. Failure to provide documentation will result in penalties and interest. While such a process can be a serious inconvenience, it is only the beginning of a potential nightmare.

As part of your audit, your bank statements will be requested to verify claimed expenses. This should be a wake-up to each of you. Are you receiving income from:

· Offshore gambling sites,
· Offshore adult sites,
· Sites in Europe, or
· Any affiliate program that has not asked for a tax identification number?

Did you report this income? It is taxable. If not, you could be guilty of a variety of offenses that fall loosely under "tax fraud". The penalties? Fines, interest and criminal prosecutions are common. Yes, jail.

How long and hard have you worked to get your online business functioning? Don't throw it away. Get your tax and corporate records in order or risk everything. Talk to your accountant and attorney. If you don't have one or both, get them.

As the IRS agent smirks at you, don't say you were not warned…

J. D. Obenberger, Esq. - AdultInternetLaw.com                






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