IRS Cash Intensive Audit

IRS Cash Intensive Audit

IRS Cash Intensive Audit highlights IRS procedures for examining cash-intensive businesses.



Chapter 1: Introduction and Overview of the Cash Intensive Business (PDF) 

  • Statement of Purpose
  • Introduction and Overview of the Guide
  • Respecting the Taxpayer’s Privacy
  • Definition of a Cash Business
    • Using a Cash Register
    • Businesses without a Cash Register
  • Books and Records

Chapter 2: Pre-audit and Background Review of the Tax Return (PDF)

  • Pre-Contact Analysis of the Tax Return
  • Review of Internal Sources
    • Access IDRS or MACS Information
    • Tax Attaché (TA)
    • Third Party Contacts: Public Records Check
  • Review of External Sources
  • Comparative Analysis and Ratio Analysis
    • Vertical Analysis and Industry Ratios
    • Comparative Ratios
      • Gross margin (gross profit) percentages
      • Inventory turnover
      • Analysis of ending inventory balances
      • Change in net sales from year to year
      • Change in cost of sales from year to year
  • Other Investigative Sources
    • Access Treasure Enforcement Communication System (TECS) Database—Passenger Activity Query and I-94 database
    • Currency and Banking Retrieval System (CBRS)
    • Immigration Files
    • Loan Application Files
    • Bank Records/Financial Records of Foreign Lender or Donor
    • Asset Locator Databases
    • Interviewing Actual Foreign Lender/Donor
    • Interviewing Other Potential Witnesses
    • Summons U.S. Parent Bank for Records Located in Its Foreign Branch

Chapter 3: Initial Interview (PDF)

  • Interview the Taxpayer
    • Accounting for Cash
    • Cash on Hand
    • Business History
    • Financial Information
  • Summary of Key Points
  • Importance of Issuing a Summons
  • Authority
    • Time and Place of Examination

Chapter 4: Minimum Income Probes (PDF)

  • Conducting the Required Minimum Income Probes
    • Financial Status Analysis
    • Interview the Taxpayer
    • Tour the Business
    • Evaluate Internal Controls
    • Reconcile Income to Books
    • Test Gross Receipts
    • Analyze Bank Accounts
  • Using Financial Status Audit Techniques
  • Respecting the Taxpayer’s Privacy

Chapter 5: Examination Techniques (PDF)

  • Examination Techniques for a Cash Business
    • Purchases can Reveal Sales
    • The Role of Money Orders and other Money Transfer Systems
    • Sources
    • Hidden Family Transactions
    • Check Cashing Services
  • Indirect Methods
    • Percentage Markup Method (and Unit Volume Method)
    • Fully Developed Cash T-Account Method
    • Source and Applications of Funds Method
    • Bank Deposit Method
    • Net Worth Method
  • Key Points to Audit of Books and Records

Chapter 6: Evaluating Evidence (PDF)

  • Techniques to Corroborate or Refute Income-Related Items
  • Evaluate the Initial Facts Concerning the Non-Taxable Sources and the Current Status of the Audit
    • Other Considerations
  • Examples of Using Specific Industry Audit Techniques
  • Special Focus Issues
    • Net Operating Loss and Passive Activity Loss Considerations
    • Employment Tax Issues
    • Inadequate Records
    • Proper Development of Cases
    • Fraud Considerations
    • Cash Hoard

Chapter 7: Digital Cash (PDF)

  • Definition of digital cash
  • Funding and using digital cash
  • Detecting the use of digital cash

Chapter 8: Underground Economy (PDF)

  • Definition of the Underground Economy
    • Traits of an Underground Worker
  • Examples of Possible Underground Activities
  • Locating Underground Economy Workers
  • Audit Techniques

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