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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