Background for the CPA
Bruce Eskew has served as the CPA for Salim’s Silver Star Auto for the tax years at issue (2020–2023). He prepared the Form 1120 corporate tax returns and is familiar with the business’s financial operations. His role in this defense is critical for two reasons:
- He is a potential defense witness — the “reliance on professional advice” defense under IRC §6664(c) can negate the fraud penalty if the taxpayer can show reasonable reliance on a qualified professional.
- He has workpapers and records that may support the Cohan reconstruction of labor costs and help explain the financial reporting methodology.
The $1,500/Month Cash Agreement — CRITICAL
According to the IRS Fraud Lead Sheet, “the owner and the CPA have agreed on a monthly amount of $1,500 to include on the books” as cash income. The examiner interprets this as evidence that both the owner and the CPA knew cash was being received but deliberately chose to report only a fraction of it.
The $1,500/month figure was a reasonable professional estimate by the CPA based on his understanding of the business. It demonstrates that:
- The taxpayer disclosed cash operations to the CPA (not concealment)
- The CPA made a professional judgment about reasonable cash income (reliance defense)
- There was an attempt to report cash, not an intent to hide it entirely (negates fraud intent)
Questions for Eskew About the $1,500 Agreement
- When was this $1,500/month amount established? Was it the same for all four years?
- What was the basis for $1,500/month? Did you estimate based on transaction volume, industry norms, or owner representations?
- Did the owner or Gus ever represent to you that cash receipts were higher than $1,500/month?
- Do you have any written communications (emails, notes, engagement letters) documenting this agreement?
- Did you advise the owner that this was an acceptable method of reporting cash income?
- Were you aware of the RO Writer software reports? Did you have access to the cash totals in RO Writer?
Records and Workpapers Eskew Should Gather and Preserve
LITIGATION HOLD applies to Eskew. He must preserve all records related to Salim’s Silver Star Auto for tax years 2020–2023. Nothing may be destroyed, deleted, or discarded.
Priority Documents Needed
| # | Document | Why It Matters |
|---|---|---|
| 1 | Complete workpapers for all four returns (2020–2023) | Shows what information Eskew had when preparing returns; establishes reliance defense foundation |
| 2 | Engagement letters with Silver Star Auto | Defines scope of services; shows professional relationship |
| 3 | All communications with Salim, Gus, or Denise (emails, texts, notes) | Establishes what owner disclosed to CPA |
| 4 | Source documents received for return preparation | Shows what records were provided vs. what CPA had to estimate |
| 5 | RO Writer monthly reports (if Eskew received them) | The IRS says Eskew used “monthly RO Writer amounts” — his copies show what data was available |
| 6 | Depreciation schedules and supporting invoices | The revised depreciation schedule is a focus of the examiner’s fraud assertion |
| 7 | Notes on the $1,500/month cash agreement | Foundation of reliance defense; must document the professional basis |
| 8 | Industry benchmark materials (if used) | Shows Eskew applied professional standards, not arbitrary numbers |
| 9 | Prior-year returns (2017–2019) for comparison | Pattern evidence — shows consistency of reporting methodology |
| 10 | Any IDR responses Eskew prepared or assisted with | Shows cooperation with examination (negates “failure to cooperate” badge) |
Questions the Defense Team Needs Answered
About Return Preparation
- Walk us through your process for preparing Silver Star’s returns. What information did you receive? In what format? From whom?
- How did you determine gross receipts for each year? Did you rely solely on what was reported to you, or did you perform any independent verification?
- How were labor costs calculated? What documentation did you receive for labor expenses?
- Were you aware that some workers were paid in cash without W-2s or 1099s?
- How were asset purchases handled? Did you require documentation before adding items to the depreciation schedule?
- The examiner notes a “revised depreciation schedule” where “2 vehicles changed to 1 vehicle for $245K.” What was the basis for the revision?
About Cash Handling
- Did the owner disclose that the business receives cash that is not deposited in the bank?
- What was the basis for the $1,500/month figure? Professional estimate? Owner representation? Industry data?
- Did you ever advise the owner that he needed to deposit all cash or maintain a separate cash log?
- Were you aware of the difference between what RO Writer reported as cash received and the $1,500/month book entry?
About Disclosure and Cooperation
- Did the owner or Gus ever refuse to provide information you requested?
- Did you ever express concern about the adequacy of their records?
- Were you involved in responding to any of the examiner’s Information Document Requests (IDRs)?
- Did the examiner ever contact you directly? If so, what was discussed?
Eskew’s Potential Role as a Witness
Under IRC §6664(c)(1), no penalty shall be imposed if the taxpayer shows that there was reasonable cause for the underpayment and that the taxpayer acted in good faith. Reasonable reliance on the advice of a tax professional is a recognized defense. Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43 (2000).
For the reliance defense to work, three elements must be established:
| Element | What Must Be Shown | How Eskew Helps |
|---|---|---|
| 1. Qualified Advisor | The advisor was a competent tax professional | Eskew is a licensed CPA — this element is met |
| 2. Full Disclosure | Taxpayer provided all necessary information to the advisor | Eskew’s testimony about what was disclosed to him; the $1,500 agreement itself shows disclosure of cash |
| 3. Good Faith Reliance | Taxpayer actually relied on the advisor’s guidance | Returns were prepared by Eskew; taxpayer followed his methodology |
Key point: Even if the $1,500/month figure underestimated actual cash, the fact that the taxpayer disclosed cash operations to his CPA and followed the CPA’s guidance on reporting is powerful evidence of good faith — the opposite of fraudulent intent.
Immediate Action Items for Eskew
- Preserve all records — electronic and paper — related to Silver Star Auto for 2020–2023
- Do NOT communicate with the IRS examiner about this case without coordinating with the defense attorney
- Prepare a timeline of his engagement: when he started, what changed over the years, frequency of contact with Salim/Gus
- Locate any written basis for the $1,500/month cash figure (handwritten notes, email, engagement memo, anything)
- Be available for a meeting with defense counsel to walk through the above questions
- Consider separate counsel — if there is any possibility that Eskew has personal exposure (aiding and abetting, preparer penalties under §6694), he should consider retaining his own attorney before providing testimony
Internal working document for the defense team. Not for distribution to the IRS or any third party.
Reviewed by Carter Hill and Vince Caruso · Day 7 Public Benefit Corporation · May 2026