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    The IRS and Darryl Strawberry's Audit for Unreported Income

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    The IRS audited the tax returns of Darryl Strawberry, a former major league outfielder. It contended that, between 1986 and 1990, Strawberry earned $422,250 for autograph signings, appearances, and product endorsements, but he reported only $59,685 of income. Strawberry attributed the shortfall to his receipt of cash for autograph sessions and promotional events. He allegedly concealed the cash payments in separate bank accounts of which his CPA was unaware.

    What tax compliance issues regarding the alleged underreporting are pertinent?

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    The IRS 'generally considers three dimensions of tax compliance: filing, payment, and reporting.' http://www.irs.gov/taxstats/compliancestats/article/0,,id=117875,00.html

    Strawberry clearly filed and paid, but the issue is reporting. He did not report all his income. Reporting is not optional but required. The real issue facing the taxpayer is whether the underreporting will be deemed evasion or avoidance. In tax law, there is a huge difference.

    Tax avoidance is a legal practice of taking advantage of all tax laws to avoid paying too much tax. Evasion, on the other hand, usually involves illegal activity to not pay income tax. Remember that Al Capone was not convicted of murder, but tax evasion.

    Unreported or ...

    Solution Summary

    In a 442 word cited solution, the response presents the issue clearly with good explanations of the difference between tax avoidance and tax evasion. Examples are provided as well as points for better understanding.