Income tax returns filed by taxpayers are often incorrect. Sometimes they are incorrect due to simple mistakes, accidents, oversight, confusion, or misunderstanding of the law. Sometimes they incorrect due to gross negligence or reckless disregard of the law. And, sometimes they are incorrect because the taxpayer willfully and knowingly intended them to be incorrect in order to purposely pay less income tax. No matter what the reason, when incorrect returns are identified, they must be corrected, either immediately, or after the conclusion of any criminal proceedings that might be undertaken.

When tax inspectors or investigators confront taxpayers to inquire why the income tax return is incorrect and seek their cooperation to rectify it, the taxpayer will either be cooperative or not. When the taxpayer cooperates, it becomes much easier to determine how much true income the taxpayer earned, or which expenditures are truly allowable under the law, in order to arrive at the correct amount of tax. Cooperative taxpayers may provide their books and records or other documents, and assist the inspector or investigator as he attempts to determine how much additional income tax the taxpayer should pay.

When taxpayers do not cooperate, the inspector, or investigator, can be confronted with a serious dilemma. How can they determine how much additional income tax the taxpayer should pay, if any. They must resort to other methods to obtain the information necessary to calculate the true tax due from the taxpayer.
During a tax criminal investigation, the investigator is required to identify the amount of income that is not reported on the income tax return, and also identify any expenditures that are on the income tax return that are not allowed by law to be included on the return. It is usually not possible to be exact in determining the amount of income, nor is it necessary to identify the exact amount of unreported income. The amount not reported must be substantial, in relation to the amount reported, if any. Small cases, where minor amounts of income are not reported, are not the type of cases the tax investigator should identify and investigate. The tax investigator should always be alert to major cases using the criteria, in order to identify and document the amount of income that is not reported, or to identify expenditures not allowed by law that have been deducted on the tax return, the investigator must identify and gather evidence. This is not an easy task. When taxpayers do not cooperate, it becomes a very difficult task.

In the world of financial investigation, there are methods and techniques available for the investigator to actually re-calculate or reconstruct the taxpayer's true income and expenses, even without his cooperation, or even without his books and records. In fact, as the tax investigator enters the world of criminal justice, where taxpayer engages in fraud, and could therefore could face imprisonment, it is highly likely that taxpayers will cooperate less. Therefore, the tax investigator must become skilled in the use of the techniques available to re-calculate or reconstruct a taxpayer's income and expenses.

However, before these methods are explained, the investigator must fully understand what an income tax return represents, and how it relates to the taxpayer's books of account, commonly called books and records. The section that follows explains how the daily business activities of buying and selling relate to an income tax return. Although this section may appear to be elementary or basic, a review of the nature of an income tax return will clarify the use of the Specific Transaction Method of Reconstructing Income, the most common and effective method available to reconstruct a taxpayer's income, when the taxpayer does not cooperate.
Income tax returns filed by taxpayers are required by the Income Tax Law to contain a summary of all financial transactions the taxpayer engaged in during the tax year. The summary should include all transactions where the taxpayer incurred an expense or other deduction allowed by law through an outlay or expenditure of funds. It should also include all transactions where the taxpayer received or otherwise earned money from selling a product or service.

In general, when the total of all transactions where funds were received exceed the total of all transactions where funds were expended, the taxpayer has a net profit, which is the amount upon which the tax is based. When the total of all transactions where funds were expended exceed the total of all transactions where funds were received, the taxpayer has incurred a net loss, and no tax is required to be paid.

Of course, each specific expenditure must be allowable under the law in order to be included on the income tax return, and each specific receipt of funds must be taxable under the law in order to be required to be reported on the income tax return. Expenditures incurred that are not allowable under the tax laws should still be reported in the taxpayer's books and records, but must not be included on the income tax return. Similarly, the receipt of funds that are not classified as funds subject to tax, should be reported in the books and records of the business, but not included on the income tax return.

In addition, under the accrual method of accounting for expenses and earnings, some expense items may be included on the income tax return even though no actual expenditure was made, and some items may be included as income, even though no funds were actually received.

If the taxpayer engages in specific financial transactions during the year that are required to be included within the summary of expenditures and receipts, but are not, then the income tax return is incorrect.
For example, if the taxpayer engages in a financial transaction where he sells a product or service but does not report the receipt as gross income or gross revenue, then the income tax return is incorrect. Similarly, if a taxpayer includes on his income tax return a financial transaction where funds were expended on a product or service that is not allowed to be deducted under the tax law, the return is also incorrect.

The income tax return is required by law to include all specific financial transactions related to determining a profit of loss. When certain, specific transaction are not included, the tax investigator must be able to identify which specific transactions were not included, and seek to gather evidence of the source and amounts required to be included. Identifying which specific transactions were not properly reported is known as the Specific Transaction Method.
Other methods of re-calculating or reconstructing a taxpayer's true net profit or loss are based on the sum total, or aggregate of all transactions the taxpayer engaged in during the year. These methods do not identify specific transactions of buying and selling. Instead, the net profit is calculated or reconstructed based on the total of all expenditures made, or the total of all funds deposited into bank accounts.

One such method is known as the Net worth Method. This method measures the increases in a taxpayer's net worth between years. Net worth is the amount of assets a taxpayer has accumulated that exceed the amount of liabilities he has accumulated. Increases in net worth are the result of the taxpayer spending money to increase the amount of assets he has, or to reduce the amount of debt he has. In addition, a taxpayer's expenditures that have no lasting value, or do not increase assets, such as expenditures for costly airline tickets for personal vacations, are identified and added to his increase in net worth.

The increase in net worth from one year to another is compared to the amount of income reported on the income tax return. Increases greater than the amount of income reported can be attributable to the taxpayer failing to report all his income, because no one can spend more than he earns. The excess is charged to the taxpayer as unreported income. Of course, adjustments must be made, as described in the text that follows, for loans, gifts, inheritances, and other sources of funds that are not taxable.

Another method is known as the Bank Deposit Method. This method compares the total amount of funds deposited into all bank accounts during the year with the gross receipts reported by the taxpayer on his income tax return. Bank deposits that exceed gross receipts are charged to the taxpayer as unreported income. Again, certain adjustments must be made, and other requirements must be met before the excess can be called unreported income.

The Specific Transaction Method is the most commonly used method and the most easily understood.
All three methods, however, have one common thread. All three require the tax investigator to follow the flow of money, from one person to another. This is accomplished by following the paper trail that financial transactions leave. When products are sold, goods are purchased to be consumed in the course of business, or when services are provided, often based on a contract, records generally exist that reflect the nature of the transaction, particularly if the amounts are large. Such records include purchase orders, sales receipts, inventory lists, invoices, deposit slips, bank statements, etc. By following the money, the tax investigators will encounter individuals who can become witnesses who will ultimately produce the evidence the investigator needs to document his case and establish the taxpayer committed a crime under the Income Tax Law.
Smaller businesses may not maintain books and records, which would increase the difficulty of addressing non-compliance. Other methods are available to address these types of taxpayers. One common method is to impose an annual license fee on small businesses, instead of requiring an income tax return. Such a method greatly reduces the administrative burden necessary to collect a small sum of income tax.

Choosing a structured settlement investment as an option for for financial gain can be a viable method of acquiring profit. These settlements are usually paid out to individuals over a period of time and may be the result of an insurance pay out, lottery winnings, annuities or a court judgment. Recipients of these funds are often willing to sell the payments in exchange for a lump sum of cash. There are a variety of reasons why an individual might choose to do this. Receiving money that is owed over time in small increments may not have the same kind of life changing possibilities that a one time payment of a large amount of money can have. This is the main attraction that draws individuals to investors who are willing to pay money for structured settlement payments. Why wait for the money when it can be obtained in one large payment? Of course, sellers will find that they are not going to receive as much money as originally would have been the case. For a structured settlement investment to work, there must be the potential of real profit down the road for the investor. These settlements may have been originally designed to create a steady source of income that will aide the beneficiary for a long time to come. This time frame will usually extend over a period of years. In the minds of some recipients, having access to a larger sum of money in the present is more valuable than having more money in the long run, but having to wait for it.

The decision to participate in a structured settlement investment can depend upon a variety of factors. Individuals who are weighing an offer to sell off any payments that will come in the future are generally more concerned about the present. Pressing financial needs can be very persuasive for the owners of these settlements. Mounting debts, needed home repairs, medical bills, or a child's education can be just some of the reasons that someone might decide to sell off future payments. But the wise seller will take a number of things into consideration. It is generally a good idea to seek counseling from an objective financial professional before making a final decision or signing any contracts. This professional should be functioning independently of any investors and have only the best interests of the seller at heart. Such counselors will usually help a client to understand just how much money will be lost should the client decide to move forward with a structured settlement investment. Advisers will also suggest certain pertinent questions to the client. How much money does the client currently need? Is this need so pressing that it is worth sacrificing future income? Is there any other way that the needed money can be obtained? Since the client will end us loosing a percentage of the settlement's worth, the seller should take the time to weigh all options and to decide if the future cost of the arrangement is worth the present day benefits.

A a structured settlement investment requires a little more than a willing buyer paired with a willing seller. While such arrangements can be a financial opportunity for both parties, the law does not allow individuals to sell off such assets without court approval. Involving a judge is designed to make sure that the seller fully understands what is being sacrificed and that the deal as it is presented is fair and equitable to all concerned. When the request is brought before the court, the seller's current situation and financial need will be presented as well. In addition to the input of a judge, separate legal representation may be called for. Many clients do not realize that they may be able to sell off only a portion of these settlements and are not obligated to sell the entire asset. This approach may offer a client the best alternative since they will be able to obtain cash for current needs while maintaining a portion of the payments that will be paid out over time. This choice can help to provide a sense of security for the future. It is also very important to make sure that the buyer or group of investors who are offering to complete the structured settlement investment are reputable and that there are no hidden fees buried in the agreement.

Selecting a reputable broker who can lead a client through the process of working with a structured settlement investment groups is a very crucial choice. A broker will need to be knowledgeable of the law as it pertains to these contracts. In addition, a broker must also hold the best interests of their clients as a top priority. The strength and comfort that God offers to believers is detailed in the Bible. "Fear thou not; for I am with thee: be not dismayed; for I am thy God: I will strengthen thee; yea, I will help thee; yea, I will uphold thee with the right hand of my righteousness." (Isaiah 41:10)

A structured settlement investment should benefit the purchasing company as well as the seller. These companies do not make such investments as a good will gesture to the seller. Like all investors, they are interested profit. For this reason, the amount of money that is paid to the seller will be less, sometimes substantially less, than the final settlement pay out. There may be fees and other costs associated with these contracts as well. What ever choice a seller might make, a fair contract will honor all concerned parties and provide needed financial relief.

From 1952 to 1982, Bob worked at the ARMCO Steel Plant in Houston, the largest steel plant west of the Mississippi. During those 30 years, Bob and his wife Jean raised three children, who are now married with children of their own. Bob worked hard during those years. He started out as a helper and worked his way up including duty on the night shift for nine years and as step-up foreman on weekends. Yet he still made the time to coach little league for both his boys every year. He got merit increases every year and eventually became maintenance foreman in charge of several hundred men.

Bob Harthcock believed that responsible management meant hands-on management. Hands-on management meant arriving at work at 5:30 a.m. to meet with the night shift before they went home. It meant walking 9 miles a day to make sure that each and every worker was doing his job and lending a helping hand if necessary. Ironically, it was Bob Harthcock’s strong work ethic and hands-on management that exposed him to deadly asbestos fibers that led to this disease.

For the last 10 years they have been full time volunteers, not earning a penny and even paying their own expenses. They have traveled all over Texas and Mexico helping build homes for the homeless and churches for the poor. They have volunteered in hospitals and in ambulances as paramedics. They have taught English and Bible classes, and helped prepare food for the poor in Mexico and Central America, and for the Apache Indians in New Mexico.