The IRS is aware that cash-intensive businesses have more opportunities to commit tax fraud. IRS tax audits frequently target these types of businesses and have special techniques used to spot errors or underreported income.
Tax Issues for Cash Businesses
Cash transactions don’t leave as much of a paper trail. Business owners who deal in cash may underreport their income and therefore pay less in taxes than they should.
Some business owners think that their tax evasion can’t possibly be detected because they deal exclusively in cash. However, the IRS and state tax authorities have many ways of examining a business and the business owner to look for discrepancies.
Tax Audits of Cash Businesses
Even before your business is officially audited, the IRS can analyze your tax returns in a number of ways. For example, many industries have fairly uniform profit margins. Based on the business expenses you are claiming, the IRS can calculate an estimated of your expected revenues. If the numbers on your tax return are very different than these estimates, it could be a sign of tax fraud.
The IRS can also look into your personal financial situation. This includes your real properties, financial accounts, and other expenses. If the income you claim couldn’t possibly support your lifestyle, the IRS has even more reason to question the validity of your tax return.
Once you’ve been contacted by the IRS, the examiner likely already knows many details about your business and personal finances. They’ll want to ask you a lot of questions, and anything you say could end up triggering a further investigation.
Not only can an IRS tax audit lead to an assessment of additional tax, penalties, and interest, but it can also sometimes lead to a criminal investigation. You should take an IRS tax audit very seriously because the IRS does decide to make an example out of certain business owners.
You have the right to have a tax attorney present during any meetings with the IRS. In many cases, your attorney can handle the communications on your behalf, so you don’t have to worry about saying the wrong thing and causing even more problems.
Contact a tax attorney right away if you have a cash business that is under IRS audit.
The Gartzman Law Firm can help you with tax audits and other IRS tax problems. Use our contact form to request a consultation with an Atlanta tax resolution attorney.