IRS Examinations of Cash Businesses

Author: Eric L Green

Document, Document, Document--Protecting the Cash-Based Business on Audit
The accurate reporting of income and expenses by cash intensive businesses has been the subject of various studies by the IRS, as well as the federal General Accounting Office (GAO). The GAO estimates that the individual income tax "gap" is in the hundreds of billion of dollars. The IRS view of the common themes of these studies is that there has been, for those taxpayers with the ability to determine their own reported income, an increasing underreporting of income.

Of particular interest are businesses and individuals who receive most of their income in cash. Cash transactions are anonymous, leaving no trail to connect the purchaser to the seller, which may lead some individuals to believe that cash receipts can be unreported and escape detection. This possibility has become an increased area of focus by the IRS, and has put pressure on the IRS to be creative in ways of calculating the amount of income from indirect sources. You may find one of your clients subject to this "creativity" on audit. In this two-hour CPE coursewith highly regarded tax controversy expert Eric L. Green, Esq. of Green & Sklarz, LLC, you will receive an in-depth review of the current IRS focus, including which industries have seen the most activity and the techniques being employed by the IRS examiners.

Publication Date: November 2018

Designed For
CPAs, EAs, tax preparers who work with cash-based business clients.

Topics Covered

• Preparer considerations
• Hot button issues
• Issues to consider when preparing returns
• IRS focus on cash businesses
• IRS audit techniques for cash businesses
• Considerations for appealing the exam

Learning Objectives

• Recognize the potential areas subject to audit when a client is a cash-based business
• Identify how to prepare for an IRS audit of a cash-based business
• Describe preparer requirements based on Revenue Procedure 2014-15
• Identify hot button issues with respect to gross receipts and expenses
• Identify a type of cash business identified in the course that is frequently targeted by the IRS
• Recognize which questions should be asked with respect to a taxpayer's Schedule A, with respect to IRS pre-contact planning
• Differentiate court cases concluded that the IRS is required to consider non-taxable sources of income or non-deductible expenses
• Describe correct statements regarding preparer considerations
• Identify a method for misappropriating cash
• Identify the more advanced and recent form of methods of cash skimming
• Recognize what types of question should be asked with respect to taxpayer's Schedule B, with respect to IRS pre-contact planning
• Identify components of Cash-T Analysis
• Recognize court cases which concluded that bank deposits are prima facia evidence of unreported income

Level
Intermediate

Instructional Method
Self-Study

NASBA Field of Study
Taxes (2 hours)

Program Prerequisites
Basic understanding of federal income taxation of individuals and businesses

Advance Preparation
None