A neighbor was just indicted for embezzlement. Here are the facts assumed from newspaper articles:
2004: embezzle $145,000 but does not declare it on the tax return 2005: embezzle another $245,000, but does not declare it on his tax return.August, 2008: He is arrested for embezzlement. The entire $390,000 is refunded in an effort to mitigate the criminal charges.
The IRS has been notified. OK, he "under reported" his income in 2004 and 2005, but what happens (tax wise) in 2008 when his total income is only $130,000?
And just out of curiosity, what would happen if he HAD declared the embezzlement on his 2004 & 2005 tax return?