The law is a funny little thing. The thing I take more issue with is the concept of how audits are handled -- "guilty until proven innocent". I have a friend

The law is a funny little thing. The thing I take more issue with is the concept of how audits are handled -- "guilty until proven innocent". I have a friend who runs a seasonal cash-only business who got audited about 5 years ago. If you knew this individual, personally, you wouldn't waste your time auditing him -- he's a super-conservative Christian fellow, who, while not being terribly big fans of The Government -- wouldn't cross even the slightest gray-area as far as ethical, let alone legal, boundaries are concerned. He hired a CPA to do his family's taxes and I guarantee he had receipts accounting for every single penny, but owing to his frugality, he appeared to have a larger lifestyle on the outside than could be accounted for with his earnings[0]. The audit went on for the better part of a year with him having to prove that he wasn't hiding income. In the end, the IRS was satisfied due to his careful record-keeping and he managed to get a few dollars back by revising his return and accounting for some deductions that he decided not to take ... out of fear of being audited[1]. [0] This is a guy who in 2001 showed me a $600 grocery bill that he paid only the sales tax on due to his careful Couponing. He also lived in his own (mortgaged) home when he was 19-years old and was only making $7.50 an hour (which, while I don't live in Silicon Valley, the area he lived in was not "inner city" and there's no way I can do the math to figure out how he pulled it off, let alone found a bank to give him a loan). [1] And having beat the audit, he never fails to take any deduction that he is eligible for.