The government employs various standard methods of proof however it may offer any relevant evidence in an effort to establish the existence of a tax deficiency in a tax evasion case. The two basic methods of proof are classified as direct and indirect. The government may use any one method or may use several to corroborate one another, and may use different methods for different years included in an indictment.
Direct methods include offering proof that the taxpayer omitted or failed to report all or part of a specific item of income, overstated deductions or falsely claimed credits. For example, the government could attempt to prove that the taxpayer failed to report a particular item of income, such as a sales commission, the proceeds on the sale of an asset, or service revenue from a business. The government can also endeavor to show that the taxpayer received a total amount of income greater than that the amount reported on the return as direct evidence of a deficiency. For example the government could attempt to established through interviews with a Doctor’s clients that the amounts they had paid him during the three examined tax years exceeded the gross receipts the Doctor reported on his returns for those years.
Indirect methods are typically used when the taxpayer has no books and records or where the government cannot obtain, understand or has no faith in the books and records produced by the taxpayer. Moreover, the use of indirect methods may be resorted to when the taxpayer has purportedly complete books and records as a way of obtaining corroborating indirect evidence to support incomplete or insufficient direct evidence. For a complete discussion of indirect methods see the question entitled – What Methods of Gathering Circumstantial Evidence Does the IRS Criminal Investigation Division Commonly Employ in Proving If I Committed a Tax Crime?
