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Unformatted text preview: significant increase in
year-to-year net worth.
year-to-year Chapter 6 Forensic Accounting 20 Indirect Methods To
Should Be Used When:
Gross profit percentages change
significantly for that particular
The taxpayer’s business and personal
expenses exceed reported income
there is no obvious reason for the Chapter 6 Forensic Accounting 21 Indirect Method
Chapter 6 Forensic Accounting 22 Market Segment Specialization
Program The IRS uses Forensic Accountants that
highly trained to examine businesses
within a particular market segment or
industry such as:
Commercial An integral part of the IRS’s approach is
the development and publication of
Audit Technique Guides.
Audit Chapter 6 Forensic Accounting 23 The IRS Audit Technique
Guides These Guides contain:
Common and Unique Business
Practices Industry Terminology
Specialized Information - To assist IRS
Agents performing these
Forensic Accountants in private
should consult the IRS Guides when
dealing with matters in a particular Chapter 6 Forensic Accounting 24 Indirect Method
Ca$H “ T “
Ca$H Chapter 6 Forensic Accounting 25 Ca$h “T”
Is an analysis of all of the Ca$h
received and all of the Ca$h spent over
a period of time.
The theory of the Ca$h “T” is:
If during a given period a taxpayer’s
expenditures exceed reported income,
and the source of the funds for such
expenditures is unexplained,
Then the excess amount represents
Unreported Chapter 6 Forensic Accounting 26 Chapter 9 Forensic Accounting 27 The “Jerardo Case”
Steven Jerardo works for the City of Phoenix,
Arizona in the Parks Department as a
“Grounds Maintenance Worker” and his
annual salary is $45,000. His daily work
involves cutting grass, trimming hedges,
and preparing ball fields for youth baseball,
soccer, and football games.
Steven Jerardo also owns a “Landscaping
Service.” The business is operated out of a
large rented warehouse and employs two (2)
workers, Juanita and Reno.
Chapter 6 Forensic Accounting 28 The “Jerardo Case”
Steven Jerardo owns a house in addition to
numerous vehicles, trailers, and a boat.
A confidential informant working with the
Phoenix Police Department says Steven
Jerardo is running a marijuana smuggling
operation out of the warehouse he uses for
his “Landscaping Service.”
The Phoenix Police Department issued many
subpoenas to obtain information on Steven
Jerado’s financial transactions.
Chapter 6 Forensic Accounting 29 The “Jerardo Case”
Determine if Steven Jerardo has income from
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