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
