IRS Agents Using New Cash Guide to Hunt for Unreported Income

 

After various studies pertaining to accuracy in the reporting of income and expenses by cash intensive businesses, the IRS has created a new guide for its agents to refer to when conducting audits of such firms. With the tax "gap" reportedly at hundreds of billion of dollars, the IRS has begun training its Revenue Agents to be more savvy in interviewing business owners and recognizing indicators of unreported income. Lawyer firm in Illinois. 

According to the guide, businesses that make a routine practice of misappropriating cash often have a pattern of reporting losses and/or low profit margins that are insufficient to sustain the business or its owners. The IRS lists the following indicators of unreported income:

A lifestyle that cannot be supported by the income reported

A business that reports losses each year yet continues to operate

Account balances increasing annually despite reporting of low net profits or losses

Business debt decreases, remains low, or doesn't increase despite reporting of low profits or losses

A wide gap between the taxpayer's gross profit margin and that typical of the industry

Uncommonly low annual sales given the type of business

The IRS specifically refers to the following businesses as "cash intensive": restaurants, bail bonds, beauty shops, car washes, check cashing locations, coin operated amusements, convenience stores, laundromats, and scrap metal processors. These types of businesses must ensure that they are keeping detailed and accurate records of their sales and expenses. That way when the IRS auditor contacts you, you will be prepared for the Information Document Request you are sure to receive.