When selling companies for my clients, I’m always concerned when I hear that the actual profits are higher than those reported to the IRS. First, a tax audit will usually uncover such hidden income and result in penalties and interest far in excess of the earlier benefits you thought you enjoyed. Second, no corporate nor most individual buyers for a company will include all of such hidden income in their calculation of an appropriate purchase price. Because most of it is excluded, the purchase price is lower, usually much lower, than what you would otherwise have received. And third, knowingly reporting inaccurate income is a felony for which people can and do go to jail. Not a good idea.
Paying the IRS is a high-class problem. It means you’re operating a profitable enterprise on which profit taxes are due. When not paying the IRS what is due, you’re either operating a losing business or you’re cheating in ways you shouldn’t. If losses are the reason for the lack of tax obligations, you need to correct the profit problems fast. If cheating is the reason for the lack of tax obligations, or just taxes lower than you should pay, you’re operating a criminal enterprise. Sounds ominous, but it’s factual. Read More.