IRS Special Agent flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Gross income definition

Under IRC §61, gross income means all income from whatever source derived unless specifically excluded by another Code section, including wages, business profits, interest, rents, and royalties.

Accounting equation

Assets equal liabilities plus equity. Every transaction preserves this equality, and double-entry bookkeeping records equal debits and credits for each transaction.

Ordinary and necessary expense

Under IRC §162, a deductible business expense must be both ordinary, meaning common and accepted in the trade, and necessary, meaning helpful and appropriate to the business.

Cash versus accrual method

The cash method recognizes income when received and expenses when paid. The accrual method recognizes income when earned and expenses when the liability is fixed.

Assessment statute of limitations

IRC §6501 generally allows three years after the return due date or filing date, whichever is later, to assess tax; six years apply if gross income is understated by more than 25%.

Tax evasion elements

Under IRC §7201, willful tax evasion requires a tax deficiency and an affirmative act of evasion, such as filing a false return or concealing income, and is a felony.

Civil fraud penalty

IRC §6663 imposes a 75% penalty on the portion of an underpayment attributable to fraud. The IRS must prove fraud by clear and convincing evidence under §7454.

Sixteenth Amendment

The Sixteenth Amendment authorizes Congress to tax incomes from whatever source derived without apportionment among the states and without regard to any census or enumeration.

Fourth Amendment warrant requirement

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

Miranda warnings

Before custodial interrogation, suspects must be advised of the right to remain silent, that statements may be used against them, the right to counsel, and appointed counsel if indigent.

Fifth Amendment scope

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

Presentment before magistrate

Under Fed. R. Crim. P. 5(a), an arrested person must be presented before a magistrate judge without unnecessary delay, generally within six hours of arrest.

Exclusionary rule

Evidence obtained through unconstitutional searches or seizures is generally inadmissible, subject to exceptions including good faith reliance on a warrant, inevitable discovery, and attenuation.

Brady disclosure obligation

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

Entrapment defense

Entrapment requires government inducement and a lack of predisposition by the defendant. Mere opportunity or solicitation without inducement does not establish the defense.

False statements statute

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

Chain of custody

Chain of custody documents each transfer and handling of evidence. A break affects the weight of the evidence and may support an authenticity challenge but does not automatically bar admissibility.

Fraud triangle

The fraud triangle consists of pressure or incentive, opportunity, and rationalization. All three conditions are typically present for occupational fraud to occur.

Net worth analysis

Net worth analysis estimates unreported income by computing the increase in a subject's net worth plus personal expenditures and subtracting reported taxable income.

Expenditures method

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

Bank deposits analysis

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

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

Cash T-account

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

Horizontal versus vertical analysis

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.

Indirect cash flow method

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

Asset misappropriation schemes

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

Deductive reasoning

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

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

Valid versus sound argument

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

Interview question sequence

Use open-ended questions first to obtain a narrative, then closed questions to clarify details, and avoid leading questions that suggest the desired answer.

Ethical conflict response

When facing an 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 techniques

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

Report writing structure

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