IRS Special Agent cheat sheet

IRC §61 defines gross income as all income from whatever source derived, including compensation for services, business profits, interest, rents, and royalties, unless specifically excluded by another Code section.

The basic accounting equation is Assets = Liabilities + Equity; every transaction preserves this equality, and the double-entry system records equal debits and credits for each transaction.

Under IRC §162, ordinary and necessary business expenses are deductible; personal, living, and family expenses are nondeductible under §262 unless a specific provision allows them.

The cash method of accounting recognizes income when actually or constructively received and expenses when paid; the accrual method recognizes income when the right to receive is fixed and expenses when all events establishing the liability have occurred.

IRC §6501 generally imposes a three-year assessment period from the return due date or filing date, whichever is later; the period is six years if gross income is understated by more than 25%, and unlimited for fraud or failure to file.

Under IRC §7201, willfully attempting to evade or defeat any tax is a felony; the government must prove an affirmative act of evasion and a tax deficiency, unlike §7203 willful failure to file, which requires no deficiency.

IRC §6663 imposes a civil fraud penalty of 75% of the underpayment attributable to fraud; the IRS bears the burden of proving fraud by clear and convincing evidence under §7454.

The Sixteenth Amendment authorizes Congress to tax incomes without apportionment among the states; the federal income tax is therefore not a direct tax requiring apportionment.

A return preparer who willfully understates a taxpayer's liability may be liable under IRC §6694 for penalties based on the greater of $1,000 or 50% of preparer fees for an unreasonable position, and higher amounts for willful or reckless conduct.

The Fourth Amendment requires warrants supported by probable cause for searches and seizures; exceptions include consent, search incident to arrest, plain view, exigent circumstances, and inventory searches.

Miranda warnings are required before custodial interrogation; the suspect must be told of the right to remain silent, that statements may be used against them, the right to counsel, and appointed counsel if indigent.

The Fifth Amendment privilege against self-incrimination protects testimonial communication; it does not protect the compelled production of physical evidence such as fingerprints, blood samples, or handwriting exemplars.

Federal agents must present an arrested person before a magistrate judge without unnecessary delay, generally within six hours under Fed. R. Crim. P. 5(a), and the complaint must establish probable cause.

The exclusionary rule bars evidence obtained through unconstitutional searches or seizures; exceptions include good faith reliance on a warrant, inevitable discovery, and attenuation.

Brady v. Maryland requires the prosecution to disclose material exculpatory evidence to the defense; Giglio requires disclosure of impeachment material regarding government witnesses.

Entrapment is an affirmative defense requiring government inducement and lack of predisposition by the defendant; mere opportunity or solicitation is not inducement.

Under 18 U.S.C. §1001, knowingly and willfully making a false statement in a matter within federal jurisdiction is a felony punishable by up to five years; the statement must be material.

The chain of custody documents each transfer of evidence; breaks in the chain affect weight, not automatic admissibility, but may support a challenge to authenticity.

The fraud triangle consists of pressure (incentive), opportunity, and rationalization; all three are typically present for occupational fraud to occur.

Net worth analysis computes a subject's increase in net worth plus personal expenditures and subtracts reported taxable income to estimate unreported income.

The expenditures method compares total expenditures for a period with known funds available; unexplained excess expenditures indicate unreported income.

Bank deposits analysis sums deposits to all accounts, adjusts for non-income items such as transfers and loan proceeds, and compares the result to reported income.

Benford's Law predicts that leading digits occur with frequencies of 30.1% for 1, 17.6% for 2, 12.5% for 3, and decreasing thereafter; significant deviation may indicate fabrication.

A cash T-account lists sources and uses of cash; unexplained cash increases or decreases can reveal skimming or unreported cash receipts.

Horizontal analysis compares line items across periods as percentage changes; vertical analysis expresses each line item as a percentage of a base such as total revenue.

The indirect method of cash flow analysis starts with net income, adds back non-cash expenses such as depreciation, and adjusts for changes in working capital accounts.

Asset misappropriation schemes include skimming, larceny, and fraudulent disbursements such as check tampering, billing schemes, and expense reimbursement fraud.

Deductive reasoning moves from a general rule to a specific conclusion; if the premises are true and the form is valid, the conclusion must be true.

Inductive reasoning moves from specific observations to a general conclusion; it is probabilistic and can be strengthened or weakened by additional evidence.

A valid argument has a conclusion that follows necessarily from the premises; a sound argument is valid and has all true premises.

When interviewing a subject, use open-ended questions first to obtain narrative, then closed questions to clarify details, and avoid leading questions that suggest answers.

In a situation involving a potential ethical conflict, document the facts, identify the applicable rule or policy, consult a supervisor or ethics official, and avoid acting on personal interest.

Active listening involves paraphrasing, reflecting feelings, and asking clarifying questions to confirm understanding and encourage full disclosure.

A written report should state the purpose, scope, methodology, findings, and conclusions, and should distinguish facts from opinions and cite supporting evidence.

Prioritize tasks by urgency and impact; when priorities conflict, escalate to a supervisor with a concise summary of options and consequences rather than deciding unilaterally beyond authority.