Halloween and Taxes: Top IRS Horror Stories

To get in full spirit of the Halloween season here at Cook and Associates, we’ve decided to share some of the scariest IRS horror stories we could find.

1. A Cayman Islands Vacation Gone Bad

When most people hear the words "Cayman Islands" they probably think of a relaxing Caribbean vacation. However, many might also think about illegal tax shelters, as the islands are somewhat infamous for hosting the private bank accounts of many American tax evaders. A few years ago, Joe ran into a few problems of his own in the Cayman Islands. He and his business partners used to vacation in, and bank in the islands on a regular basis, until Joe's vengeful ex wife got wind of the situation. She tipped off the IRS and Joe found out about it one afternoon when 25 federal agents stormed his home and business, ceasing all kinds of financial information. Joe was considered a flight risk and imprisoned under $5 million bail. It took dozens of court cases and thousands of dollars in legal fees to prove his innocence, and resulted in a major lifestyle change for Joe.

2. The Audit of Endless Receipts

Auditors are notorious for being difficult every now and then when it comes to documenting expenses and qualifying for credits, but usually leave a little leeway. However, this was not the case for a taxpayer named Heather who was audited by what she now refers to as the world's most relentless auditor. She claims that the auditor in question hounded her for not only proof of her business expenses, but receipts for every single personal and professional transaction made over the past two years. The auditor supposedly made her scrounge up receipts for transactions for as little as a dollar or two. Needless to say, Heather could not find every document required and faced several penalties.

3. The Beauty Shop Butchery

Celia, an honest and hardworking beauty shop owner, had her life ruined by the IRS a few years ago when her shop's equipment was seized and sold at auction to pay her back tax debts. Celia did not know much about taxes and hired a professional to assist her. Fortunately, the tax consultant found that Celia had indeed paid her taxes in full. The IRS had made a mathematical error, accidentally entering her tax amount twice in to the system, which made it look like she had not paid her taxes at all. Although she got her equipment back, she lost many of her clients and income due to the incident.