Woodbury, NY (PRWEB) December 09, 2013
Gettry Marcus CPA, P.C., discusses the Net Worth method, which has been around for almost a century and is often employed by government prosecutors in criminal tax cases. This technique can be an effective forensic accounting tool. However, to withstand the defenses presented by the target, the forensic accountant must be meticulous with the procedures and assumptions employed.
The Net Worth Method looks at the difference between a person’s net worth (total assets less total liabilities) on any two given dates. If the evidence collected can establish that a person’s net worth increased more than the receipts received by a person in the form of money or property, less expenses, then this excess would be additional taxable income to that person. Also considered is the spending for living expenses, taxes, etc.
The Net Worth Method has been endorsed by the U.S. Supreme Court and every circuit court. Its use is not limited to matters of tax fraud. Forensic accountants can also apply this technique to a wide array of cases, such as divorce litigations, shareholder/partnership disputes and fraud investigations. The Net Worth Method is considered an indirect method of proof that, if applied properly, presents compelling circumstantial evidence of a target’s hiding of unreported income.
The Supreme Court has established three requirements that the government must meet before using the Net Worth Method. The forensic accountant should satisfy these requirements before putting forth the Net Worth Method in a litigation scenario. These requirements are:
1. Establishing a definite opening net worth.
2. Negate plausible explanations by the defendant inconsistent with guilt.
3. Establish that net worth increases are attributable to unreported taxable income.
For an example of the Net Worth Method, important considerations when preparing a Net Worth Method analysis and the most common defenses to the Net Worth Method, click here.
Gettry Marcus CPA, P.C. is a Top 200 firm nationally with offices in Woodbury, Long Island and New York City. We provide accounting, tax, and consulting services to commercial businesses, high net worth individuals and various industries which include Real Estate and Health Care. We have one of the premier and most credentialed Business Valuation, Litigation and Forensic Accounting Groups in the New York Area. Our experience in diverse industries and a highly talented and experienced professional staff gives us the ability to share valuable insights into our clients’ businesses, to better understand their goals and problems and to help them attain the vision they have for their company.
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Media inquiries: Contact Fayellen Dietchweiler at 516-364-3390 ext. 225 or via email at fdietchweiler(at)gettrymarcus(dot)com.