IRS Special Agent key terms

All income received in any form, including money, property, and services, unless the Internal Revenue Code specifically excludes it. It is the starting point for calculating taxable income.

Gross income reduced by specific statutory deductions such as retirement contributions and self-employment tax. It determines eligibility for many deductions, credits, and phase-outs.

A deduction subtracted from gross income to arrive at adjusted gross income, available whether or not the taxpayer itemizes. Examples include retirement account contributions and student loan interest.

An expense such as mortgage interest, state taxes, or charitable gifts that a taxpayer may subtract from adjusted gross income instead of taking the standard deduction. Records must substantiate each amount.

A fixed statutory amount that reduces taxable income for taxpayers who do not itemize. The amount varies by filing status and is adjusted annually for inflation.

The category that determines tax rates, standard deduction amounts, and credit eligibility, such as single, married filing jointly, married filing separately, or head of household. Status depends on marital and dependent facts.

A qualifying child or qualifying relative whose support and residence facts allow a taxpayer to claim exemptions, credits, or head of household status. Tests include relationship, age, residency, support, and joint return rules.

A dollar-for-dollar reduction of tax owed, more valuable than a deduction of the same amount. Credits may be refundable, meaning the excess is paid to the taxpayer even with no tax liability.

A tax credit that can reduce tax liability below zero, with the excess refunded to the taxpayer. The earned income credit and child tax credit are common examples scrutinized for fraud.

Falsely claiming the refundable credit for low-income workers by inflating income, inventing dependents, or filing without eligibility. It is a frequent target of IRS criminal investigations.

Social Security and Medicare tax owed by individuals with net earnings from self-employment. It is computed on a schedule attached to the individual return and partly deductible above the line.

Profit from selling a capital asset, measured as the difference between the sale price and the adjusted basis. Holding period determines whether the gain is short-term or long-term.

The amount invested in property for tax purposes, used to measure gain or loss on sale. Basis can be adjusted upward for improvements and downward for depreciation taken.

The portion of gain on the sale of depreciated business property that is taxed as ordinary income rather than capital gain. It recovers tax benefits previously claimed through depreciation deductions.

A transaction in which business or investment real property is swapped for similar property, deferring gain recognition. The replacement property must be identified and received within statutory deadlines.

A tax return that the filer knows is incorrect in a material way when signed under penalty of perjury. It is the core offense in many tax fraud prosecutions.

The willful attempt to defeat or evade tax assessment or payment through unlawful means such as hiding income, keeping double books, or filing false documents. It requires a specific intent to violate the law.

A voluntary, intentional violation of a known legal duty. It is the mental state required for most criminal tax offenses and distinguishes evasion from negligent error.

The crime of willfully failing to file a required return, pay estimated tax, keep records, or supply information. It can be charged even when no tax is ultimately owed.

Willfully failing to pay tax due, often charged alongside failure to file. The government must show the tax was due and the failure was intentional, not merely late.

A federal law requiring financial institutions to report large currency transactions and suspicious activity. It also requires individuals to report foreign financial accounts, supporting money-laundering and tax investigations.

A filing required when a financial institution handles more than $10,000 in cash in one business day from or for one person. It creates a paper trail useful to financial investigators.

Deliberately breaking up cash transactions to stay below the $10,000 reporting threshold. It is a federal crime even if the underlying funds are legal.

A confidential filing by a financial institution describing transactions that appear unusual or possibly illegal. Investigators use these reports as leads but cannot disclose them to the subject.

The process of disguising the source of illegally obtained money so it appears legitimate. Federal law criminalizes the financial transactions and transportation of proceeds of specified unlawful activity.

A compulsory demand for documents or testimony issued by a grand jury at the request of prosecutors. It supports criminal tax investigations before charges are filed.

A court order authorizing agents to search a place and seize specified evidence. It must be supported by probable cause and describe the place and items with particularity.

A documented record of who handled evidence, when, and where from seizure through trial. Gaps can undermine admissibility and credibility of the evidence.

The advisement of rights to remain silent and to counsel required before custodial interrogation by law enforcement. Statements obtained without it may be excluded.

Questioning by law enforcement after a person has been taken into custody or otherwise deprived of freedom in a significant way. It triggers constitutional protections.

An indirect proof technique comparing a suspect's net worth over time with reported income. Unexplained increases in assets support an inference of unreported taxable income.

An indirect method that lists all known sources of funds and all expenditures and investments. The excess of applications over sources indicates unreported income.

An indirect proof technique that treats total deposits as income, then subtracts non-income deposits and adds cash expenditures. The remainder is unreported income.

A fact pattern such as cash-heavy business, lifestyle beyond reported income, or unusual related-party transfers that suggests possible tax fraud. Indicators guide case selection and investigative focus.

Reviewing balance sheets, income statements, and cash flow to test consistency and detect omissions. Investigators compare reported figures with third-party records and prior years.

Facts and circumstances that would lead a reasonable person to believe a crime has been or is being committed. It justifies warrants, arrests, and some investigative steps.

The significance of a false statement or omission in influencing a decision or outcome. In tax cases, a material falsehood supports criminal charges rather than mere correction.

A taxpayer's timely admission of unreported income or unpaid tax before an investigation begins. It may reduce criminal exposure but does not guarantee immunity.

Information that tends to negate guilt or reduce punishment. Prosecutors must disclose it to the defense under constitutional due process rules.