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)
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Statement of Purpose
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Introduction and Overview of the Guide
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Respecting the Taxpayer’s Privacy
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Definition of a Cash Business
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Using a Cash Register
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Businesses without a Cash Register
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Books and Records
Chapter 2: Pre-audit and Background Review of the Tax Return (PDF)
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Pre-Contact Analysis of the Tax Return
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Review of Internal Sources
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Access IDRS or MACS Information
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Tax Attaché (TA)
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Third Party Contacts: Public Records Check
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Review of External Sources
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Comparative Analysis and Ratio Analysis
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Vertical Analysis and Industry Ratios
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Comparative Ratios
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Gross margin (gross profit) percentages
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Inventory turnover
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Analysis of ending inventory balances
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Change in net sales from year to year
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Change in cost of sales from year to year
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Other Investigative Sources
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Access Treasure Enforcement Communication System (TECS) Database—Passenger Activity Query and I-94 database
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Currency and Banking Retrieval System (CBRS)
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Immigration Files
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Loan Application Files
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Bank Records/Financial Records of Foreign Lender or Donor
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Asset Locator Databases
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Interviewing Actual Foreign Lender/Donor
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Interviewing Other Potential Witnesses
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Summons U.S. Parent Bank for Records Located in Its Foreign Branch
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Chapter 3: Initial Interview (PDF)
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Interview the Taxpayer
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Accounting for Cash
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Cash on Hand
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Business History
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Financial Information
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Summary of Key Points
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Importance of Issuing a Summons
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Authority
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Time and Place of Examination
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Chapter 4: Minimum Income Probes (PDF)
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Conducting the Required Minimum Income Probes
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Financial Status Analysis
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Interview the Taxpayer
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Tour the Business
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Evaluate Internal Controls
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Reconcile Income to Books
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Test Gross Receipts
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Analyze Bank Accounts
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Using Financial Status Audit Techniques
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Respecting the Taxpayer’s Privacy
Chapter 5: Examination Techniques (PDF)
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Examination Techniques for a Cash Business
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Purchases can Reveal Sales
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The Role of Money Orders and other Money Transfer Systems
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Sources
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Hidden Family Transactions
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Check Cashing Services
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Indirect Methods
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Percentage Markup Method (and Unit Volume Method)
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Fully Developed Cash T-Account Method
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Source and Applications of Funds Method
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Bank Deposit Method
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Net Worth Method
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Key Points to Audit of Books and Records
Chapter 6: Evaluating Evidence (PDF)
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Techniques to Corroborate or Refute Income-Related Items
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Evaluate the Initial Facts Concerning the Non-Taxable Sources and the Current Status of the Audit
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Other Considerations
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Examples of Using Specific Industry Audit Techniques
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Special Focus Issues
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Net Operating Loss and Passive Activity Loss Considerations
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Employment Tax Issues
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Inadequate Records
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Proper Development of Cases
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Fraud Considerations
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Cash Hoard
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Chapter 7: Digital Cash (PDF)
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Definition of digital cash
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Funding and using digital cash
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Detecting the use of digital cash
Chapter 8: Underground Economy (PDF)
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Definition of the Underground Economy
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Traits of an Underground Worker
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Examples of Possible Underground Activities
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Locating Underground Economy Workers
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Audit Techniques