Keeping double books may risk tax evasion charges

Keeping double books may risk tax evasion charges

On Behalf of | Mar 14, 2022 | White Collar Crimes |

Tax evasion is a serious crime that could land someone in prison along with heavy fines. Businesses may run afoul of tax laws in different ways, such as not reporting some assets to the IRS in order to avoid paying taxes. Some tax evaders accomplish this by keeping two or more sets of financial books.

A business having multiple financial records is not a crime by itself, provided that the records accurately represent the finances of the business. FindLaw explains that the use of double books may serve as evidence or even the instrument of tax evasion.

Using double books to evade taxes

Business owners seeking to dodge taxes will present a set of books to the IRS that omits key information like sources of income or properties that should undergo taxation. Meanwhile, the business keeps a separate set of books that accurately documents all the transactions. This system allows tax evaders to present a fraudulent image of the company’s finances to the government. As a result, the company pays less in taxes or avoids some taxes altogether.

Why do some companies keep double books

It may seem strange that businesses would keep multiple sets of books given the legal risks, but All Business explains that some companies find seemingly good reasons to do so. A company may want to keep their workers from seeing sensitive financial data, so it conceals the complete financial data in a second file that workers cannot access. Additionally, some businesses create a second set of financial records for a tax preparer to work with.

The problem with maintaining multiple financial records is that it increases the risk of discrepancies and confusion. A bookkeeper might even send the wrong records to the IRS, which could result in major legal problems. Even if maintaining a single set of financial books seems burdensome, it may be worth it to avoid tax evasion charges.